Friday, April 15, 2011

Canadian retailers are not greedy.

An article published in this week's Ottawa Citizen asks the question "Canadian currency is trading at a three-year high and has been close to or above par for years. So why are we still paying so much for consumer goods?" The obvious assumption is that retailers (like me!) are simply too greedy to pass on the savings to consumers. Hardy har har, that's a good one! This question sometimes comes up in the store, and I've seen it come up multiple times on various online forums. Yes, we charge a higher price on some of the products we stock in comparison to our US counterparts, but retail pricing within Canada is a complex matter, there is certainly more to it than the strengh of our loonie. As an example, bumGenius 4.0 diapers, for example, retail for $23.85 in Canada, compared to $17.95 in the US. Why the disparity? There are a few reasons for higher suggested retail prices (SRPs) in Canada.

The first issue that results in higher SRPs in Canada is duty -- bringing products across the border often entails paying a tariff to Canada Customs. I usually pay anywhere from 12-18% duty on products manufactured outside of North America when I purchase them directly from a manufacturer located outside of Canada. In addition, I have to pay a brokerage fee at the border to the carrier who transports the package - on average, I will pay UPS $60 to broker an order.

In theory, the point of applying tariffs to goods manufactured outside of North America is to encourage companies to keep manufacturing within North America, however, I learned last year that tariffs can also apply to goods manufactured within North America. Out of the blue, I received a surprise bill for thousands of dollars (!!!) for duty assessed on previous shipments of Fuzzibunz diapers, which were manufactured within North America at the time. Despite being sewn within North America, components of the diaper were manufactured outside of North America (the fleece was milled in China). I was informed that it is my responsbility as a retailer to ensure that every single package I import is brokered properly. Forget the $60 a pop I pay UPS, that affords me zero protection, I should familiarize myself with the origin of every component of every product, and ensure products that are deemed NAFTA-compliant (as the diapers had been) are actually NAFTA-compliant, and if the appropriate tariffs are not charged, the onus is on me to contact Canada Customs to rectify the situation.

Another reason for higher SRPs within Canada is the fact that some companies rely on distributors to act as a liason between the manufacturer and the retailer. Distributors offer a number of benefits, an obvious benefit to me is that the hassle of importing packages across the border is delegated to someone else (hallelujah!). For the consumer, distributors within Canada make handling warranty issues easier. This convenience comes as a price, however, as the distributor must get paid for the work they do, often bumping up the SRP within Canada.

Lastly, the higher cost of transportation within Canada leads to higher freight costs for retailers, regardless of whether a product is imported, or purchased domestically by a retailer. US-based retailers enjoy things like flat rate shipping via USPS, Canadian retailers are not so lucky. I have heard of some retailers renting a PO Box across the US border to keep freight costs down, but the possible savings incurred by driving across the border to pick up packages would be lost when you consider the time it would take.

So there you have it. Establishing retail prices within Canada is far more complicated than simply paying attention to the strength of the Canadian dollar. Higher prices within Canada are not indicative of greed on the part of retailers, they are simply a natural result of the cost of doing business as a Canadian retailer. You can get around higher Canadian SRPs by ordering from retailers outside of Canada, although some manufacturers (like Cotton Babies, the manufacturers of bumGenius diapers) forbid cross-border selling, and you are still on the hook for duties and taxes owed. When your support Canadian retailers, you are supporting the Canadian economy, and that's a good thing.


  1. Very well written and great points. As a Canadian importer/distributor we are often asked why our products are more expensive than in the US. We will refer those inquisitors to your article.

  2. Due to industry lobbying and special interest politics, the import laws for textiles are an absolute mess.

    I just read this fantastic book which spells it all out:

  3. The problem isn't with retailers/distributors that sell goods imported from the US at a higher retail than in the US. The problem is with the retailers/distributors that haven't lowered the price since the US dollar has weakened.

    Many retailers are still selling goods at the same price as a year ago when the US dollar was stronger.

    If the prices drop to account for the new exchange rate... good. We'd still be paying more than our US neighbours for the same goods if we account for import duties, distribution to a population that is more spread out, unicorns, leprechauns, but we'd be paying less than we did a year ago when our dollar was at 94 cents US... or at least we should be because, hey, the exchange variable is the thing that changed in the last year and nothing else did.