A UBC expert explains the impact of cross-border shopping on Canadian consumers and the economy
Despite recent fluctuations in the value of the loonie, many Canadians will be heading to the U.S. this summer for a little shopping. Keith Head, a professor with the Sauder School of Business, discusses the impact of cross-border shopping on the northern side of the 49th parallel.
How bad is cross-border shopping for the Canadian economy?
It depends on who you are. Consumers benefit from lower prices and availability of more variety of goods and services. On the other hand, retailers suffer from lost sales. There also may be lower tax revenue since most of the goods people bring back from the U.S. don’t get taxed.
One thing to keep in mind is that studies show that the people who cross tend to live very close to the border relative to the rest of the population. Not surprisingly, other studies show that negative retail effects are also mainly experienced close to the border. For most Canadians cross-border shopping is a pretty rare event without major economic consequences.
Do you think our weaker dollar will decrease the number of Canadians crossing the border to travel and shop this summer?
The dollar has actually been on an upswing in June, increasing by a couple of cents. Our research finds that every one per cent increase in the Canadian dollar raises cross-border day trips by between one and two per cent. And July and August are the prime crossing months. So I expect we’ll see a lot of travel though about 10 per cent less than the years when the loonie was over par.
With the Canadian dollar coming in at 93 cents US, is it still a deal to shop south of the border?
Of course it depends on what you are shopping for. At US$1.07 per Canadian dollar almost everything was cheaper in the U.S. At 93 cents there is still a large range of bargains in the U.S. but your savings are smaller and they certainly need to be balanced against the drive and border wait times. For many of us, the savings just aren’t impressive enough anymore. But others find ways to avoid the long lines and/or take pride in getting what they perceive as a deal.
What can Canadian retailers do to reduce the impact of cross-border shopping?
It really depends on how far they are from the border. If they are more than, say, 50 km from the border, they do not need to be overly focused on U.S. competition and should just concentrate on beating local competitors. But within 50 km of the border, they need to think about ways to decrease the “elasticity of demand.” By that I mean they need to find non-price attractions for consumers. For example, people like me who are trying to get their Elite 50K status on Air Canada are more reluctant to drive down to Seattle to fly on other airlines. If I were a border-area retailer I would be very focused on two things: 1) raising customer loyalty and 2) getting my input costs as low as possible, and that might involve doing some cross-border shopping myself.
What could the Canadian government do to discourage cross-border shopping?
Running the Canada Border Services Agency is not cheap. I would consider tolling crossers the same way we have put a toll on other expensive infrastructure such as the Port Mann Bridge. It would bring in revenue and discourage excessive crossing. The result could be less traffic at the border, which would lead to less air pollution and lower CO2 emissions. A more radical proposal would be to follow Europe and set up something like the Schengen Agreement, which would eliminate the need for crossing controls of any kind.