Nov. 23 (Bloomberg) -- Niyousha Kerr plans to drive two hours to Buffalo, New York from Toronto for Black Friday shopping at U.S. stores that will help drain C$5 billion ($5.01 billion) from Canadian retailers this holiday season.
“Things are always cheaper and then on top of that there are sales,” said Kerr, shopping at Toronto’s Eaton Centre mall. Kerr plans to get her Christmas gifts south of the border this weekend with her husband and two friends, shopping at stores including Target Corp. and Toys ’R’ Us Inc.
While retailers like Hudson’s Bay Co., Canada’s oldest company, are advertising Black Friday deals of their own, higher duty-free limits, lower U.S. prices and a currency near par with the U.S. dollar will lead to at least a 25 percent increase in lost sales abroad in November and December, said Douglas Porter, deputy chief economist at the Bank of Montreal. He says the sales drain will total C$5 billion.
The government in June raised the amount Canadians can spend duty-free to C$200 from C$50 for trips longer than 24 hours and as much as C$800 for stays of more than 48 hours, giving shoppers more incentive to head south. Overnight trips to the U.S. rose 58 percent from 2001 to 2011, the latest year data is available from Statistics Canada. The Canadian dollar surged about 56 percent over the period, from 63 U.S. cents at the end of 2001, and hovered near par today.
“People are doing little shopping vacations in the U.S., even for a weekend,” said Porter by phone from Toronto. “If you take a family of four down for a weekend the duty free limit would be C$3,200. Obviously it depends on the family but I think that would pretty much fill the bill for the Christmas shopping season.”
Black Friday, the day after U.S. Thanksgiving, is traditionally the beginning of the holiday shopping season in the U.S. when retailers lure customers with deep discounts. The name recalls a time when U.S. retailers would use the day to make a big part of their annual profit, and income statements would go to black from red.
Six percent of Canadians are planning a trip to the U.S. for Black Friday deals this year, according to a Harris-Decima survey of 1,004 people conducted Oct. 18 to 21 by the Retail Council of Canada, an industry group.
In Toronto, the country’s largest city, 44 percent of shoppers said they were planning to buy gifts in the U.S. this holiday season, and 70 percent said U.S. retailers provide deeper discounts, according to a survey by Accenture Plc, a Dublin-based consulting firm.
Canadian mall traffic will be reduced by people going south to shop, said Jeremy Reitman, chief executive officer of Reitmans Canada Ltd., a Montreal-based specialty clothing retailer. “That impedes the traffic to the malls and thereby the sales.”
There will be no Black Friday promotions at the 918 stores under the six Reitmans banners in Canada including Smart Set, RW&CO., and Thyme Maternity, Reitman said in a telephone interview.
“We don’t focus on Black Friday because we have our own calendar in Canada,” he said.
The last two months of the year account for about 23 percent of retail sales in Canada, excluding autos, making them a crucial time for retailers to turn a profit, Porter said.
Canadian retail sales rose 0.1 percent in September, less than the 0.5 percent increase economists surveyed by Bloomberg forecast, as gains at new car dealers were offset by declines in department stores, Statistics Canada reported yesterday.
Canada is starting to see “consumer tightening,” Calvin McDonald, chief executive officer of Sears Canada Inc., said on Business News Network. The Toronto-based retailer, 51-percent owned by Sears Holdings Corp. of Hoffman Estates, Illinois, is having Black Friday sales all weekend.
Other retailers in Canada are conforming to the U.S. calendar, holding Black Friday events with sales and extended hours. Wal-Mart Stores Inc., the world’s largest retailer, has distributed flyers to advertise Black Friday promotions at its stores in Canada. Hudson’s Bay, which operates The Bay department stores, advertised Black Friday events at its stores a week and a half early.
Hudson’s Bay has cut prices in the days leading up to Christmas since 2010, adding to the traditional post-holiday Boxing Day sales. This year Black Friday is being incorporated in the events with extra sales and extended hours, said Tiffany Bourre, a spokeswoman for the company.
Hudson’s Bay fell 0.2 percent to C$16.85 at the close in Toronto today, down from its initial public offering price of C$17 on Nov. 19. Reitmans fell 0.8 percent to C$11.70 at the close and has declined 22 percent this year.
Felicia Fefer, a spokeswoman for Wal-Mart Canada, didn’t respond to voice mail messages requesting comment. Target will open 125 to 135 stores in Canada starting next year.
Cadillac Fairview, a mall operator owned by the Ontario Teachers’ Pension Plan, is extending hours on Black Friday at six of its properties around Toronto. The Eaton Centre was set to open at 6 a.m. today. Retailers will offer “comparable deals” to those in the U.S., sparing shoppers a commute to the border, and giving them the chance “to find deals in the comfort and convenience of their own backyards,” a press release said.
ANN Inc. opened its first Canadian Ann Taylor store in Cadillac Fairview’s Eaton Centre in October and will match its Black Friday offerings in the U.S., said Meredith Vlitas, senior marketing director at the Eaton Centre.
“The deals that will be offered here on Friday will be the same that people will be accessing in the U.S.,” Vlitas said by phone Nov. 19.
Companies with operations in Canada and the U.S. may have to sacrifice profit to offer Canadians comparable deals as suppliers sometimes demand a premium for goods sold in Canada.
Retailers with stores in both countries pay suppliers 10 percent to 50 percent more for a product sold in Canada, the Retail Council said in a submission to an inquiry into consumer price discrepancies by the Canadian Senate.
Suppliers say they need to charge higher prices to supply a smaller, more dispersed Canadian population, which makes volume discounts more difficult, the Retail Council submission said. As a result, Canadians pay 13 percent more for a 46-inch LED TV than those sold in the U.S., 47 percent more for a printer, and 31 percent more for a coffee maker, a survey by the Retail Council said.
“It is difficult for Canadian retailers to compete with their U.S. counterparts,” said Sally Ritchie, a spokeswoman for the Retail Council.
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