BUSINESS

A maple-leaf markup that won’t go away

The dollar’s way up, so why is the cross-border price gap still so high?

PATRICIA TREBLE August 14 2006
BUSINESS

A maple-leaf markup that won’t go away

The dollar’s way up, so why is the cross-border price gap still so high?

PATRICIA TREBLE August 14 2006

A maple-leaf markup that won’t go away

BUSINESS

The dollar’s way up, so why is the cross-border price gap still so high?

PATRICIA TREBLE

Every time Eloisa Santos flies to the U.S., she holds off buying magazines until she’s south of the border. Having the Canadian and American prices side-by-side on the cover means that the difference “is just so obvious,” Santos complains. “I won’t buy those mags in Canada except when I absolutely have to.”

Little wonder when even fluffy InStyle is 34 per cent more expensive north of the border. Ottawa’s über-mag shop, Britton’s, gets customers like Santos every day. “They do the math, take a second look and instead of three or four magazines,” says manager Phil Patenaude, “they buy one or two.”

When our dollar bottomed out at US61.79 cents on Jan. 21, 2002, stories abounded of celebrities and ordinary mortals alike saving beaucoup bucks by shopping in Canada. Since then the loonie has floated ever higher— it’s now hovering around US89 cents. But the muscular dollar has yet to make its presence felt in many import prices. Convert American prices into loonies and the gap can be startling: Prison Break's first season DVD set, available on Aug. 8, is priced at US$38.99 on Amazon.com. That converts to $43-81. But on Amazon.ca the cost is $62.99—making the northern price a whopping 44 per cent more expensive. Buy a Williams-Sonoma copper fry pan in Toronto rather than New York City and cough up another 31 per cent. Or pick up a Biotherm scrub here and pay 42 per cent more than at a California Walgreens.

While some prices have become seriously out of whack, consumer reaction has been, for the most part, muted. “It’s a bit of a mystery,” says David Tulk, a Toronto-Dominion Bank economist, who theorizes that, given a “very healthy economy, people are making enough money that they don’t let it affect them.” But not everyone is waiting for prices to adjust; same-day car trips to the U.S. topped the two million mark in April, one of the highest levels since 9/11. Plattsburgh, N.Y.’s Champlain Centre, 40 km from the border, is reaping the benefit—the number of Canadian shoppers crowding its stores has jumped 30 per cent in the last four months. Consumers are also doing the math on big-ticket

items. A recent study by auto industry analyst Dennis DesRosiers revealed that buying a luxury SUV in the States could keep as much as $14,000 in a Canadian’s wallet, though duties and warranty issues can make crossborder auto shopping tricky.

Some firms are adjusting. Just weeks after every Indigo Books & Music store put up signs explaining how book pricing was the purview of publishers and not Indigo, both Random House of Canada and John Wiley &

THE FIRST SEASON DVD FOR PRISON BREAK IS 44 PER CENT MORE EXPENSIVE IN CANADA

Sons announced they were dropping their prices on American titles. “We were hearing about it from consumers and bookstores,” admitted Robert Harris, head of John Wiley’s trade division. Then, on July 20, eBay lowered “out of synch” Canadian fees for its customers. Others, in highly competitive fields, do even better. When American boats arrive at Mike Kelly’s Portland, Ont., marina, he boasts that there’s “no difference except for the exchange rate and GST”-good news considering a nice inboard can start at $40,000.

The exchange rate may not be the only reason for the gap in prices. Recently, on

Amazon.ca, the Dixie Chicks’ Taking the Long Way, was 32 per cent more expensive than on Amazon.com. Sean Sundwall of Amazon says their Canadian price is “based on the list price of the publisher. So the pricing issue starts further upstream than our site.” According to Erica Silver, publicist for the Chicks’ “upstream” Canadian record company, Sony BMG Music, “each [country’s] market is independent,” virtually all Canadian CDs are manufactured domestically and their prices reflect the local market. (Last Friday, the CD cost was roughly equal in both countries.)

And since pricing decisions are often made six months to a year in advance, companies are loath to make quick exchange-rate adjustments—in case the rates swing back the other way. Slow changes aren’t just happening here; economists have noticed the same phenomenon throughout the industrialized world. In countries with an inflation-fighting central bank, firms change their prices

less frequently—at least in the short termafter a rate change. According to a 2005 Bank of Canada working paper by Nooman Rebei and Hafedh Bouakez, in the first two years after an exchange rate change, only about 25 per cent of an adjustment is passed onto Canadian consumers. But economic explanations don’t make ponying up any easier— convert the American price of Freakonomics and the maple-leaf markup is 20 per cent. Perhaps that’s what Malcolm Gladwell meant by his cover blurb “prepare to be dazzled”— his latest bestseller, Blink, is just 14 per cent more expensive here. M