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How a rising loonie is biting into the Canada-U.S. price gap

Identical products often still cost more in Canada than they do in the United States. Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., does an annual survey of the pricing gap. His most recent report, released last July, found that everything from paperbacks to gaming consoles and ice cream was roughly 6.8 per cent more expensive on average in Canada.

Among the products he opted to look at, magazines stacked up some of the biggest price differences (14 per cent higher), and some electronics also saw a considerable markup. Now that the loonie is up again, some products may be moving toward more equal footing.


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The last time the dollar hit through parity in 2007, that omnipresent barcode in the corner of books got some bad press. Consumers started questioning why, when the loonie was so strong, they should still pay $35 for a book that cost $25 in the U.S.

While books are still among the products with the widest price gap, according to Mr. Porter's last report (sale prices had evened out, but regular prices were still 11 per cent more expensive), some retailers and publishers have started to reconsider their pricing.

In November, 2007, when the loonie was at its peak, Wal-Mart Canada Corp. chopped prices for books in its Canadian stores to be in line with the U.S. listed price.

"Pricing parity ... is an issue that cropped up a few years ago, and it's top of mind now. It's not something new," Wal-Mart Canada spokesperson Karin Campbell said yesterday. Now that the Canadian dollar is up again, pricing "is front and centre in our minds" and the company continues to negotiate with suppliers, she said.

Penguin Group Canada also responded to currency changes in 2007, and priced new releases to within 10 per cent of those south of the border beginning in 2008.


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Cross-border shoppers are most often in the market for fashion, since the price is high enough to justify the gas money to the closest U.S. mall, but not so high that it pushes consumers above their limit at Canadian customs.

"Fashion tends to be the No. 1 border-crossing product," said Marshal Cohen, chief industry analyst with market research firm, the NPD Group. "It's really generally about product that the consumer can easily transfer."

With so much pressure on the segment, men's clothing retailer Brooks Brothers last week announced it cuts to prices in its Canadian stores. "Over the last six weeks, both our regular customers and associates in the store were zeroing in on the fact that the dollar's just about at par," said Brian Shaughnessy, Brooks Brothers' country manager for Canada. When the retailer opened its first two stores in Canada last May, items cost roughly 15 per cent more based on the assumption that the loonie would be relatively weak compared to the U.S. dollar, plus an extra markup to account for higher shipping costs and duties. Now, the company has cut the currency difference, but still accounts for the other costs, meaning most products are roughly 10 per cent more expensive in Canada - as opposed to the 20-to-25 per cent hike before now.

Bath and Body Products

While it takes a bigger purchase to drive Canadians across the border to shop, some smaller products have reduced the pricing spread. For example, Body Shop International PLC moved to price parity in its U.S. and Canadian stores in May, 2008.

"It was in response to the continued strength of the Canadian dollar. It was a way of creating parity with the U.S. retail experience," Body Shop spokesperson Shelley Simmons said.

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There is a growth in shoppers looking for cross-border bargains of about 3 per cent each year, Mr. Cohen said. While some of that is done in person, much of it is also driven by online sales. When consumers shop on the Internet, factors such as the price of gas and the time investment aren't as important, meaning even smaller products need to mind the pricing gap. "The two markets work very closely together," Ms. Simmons said. "It's about offering good value for our customers."

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