Why Canadians Shop in America

With the loonie worth more than the greenback, Canadians head south for dealsand gripe about the high prices at home

Five years ago, Canadians had to put up with paying more than Americans for everything from Buicks to books when their dollar, or loonie, dipped to a low of 62¢ (U.S.). But while the soaring loonie is now worth more than its U.S. peer, prices north of the border remain high.

That has turned the grumbling into open rebellion. Canadians, 88% of whom live within 200 miles of the border, are increasingly crossing into the U.S. to shop and are going south for a record number of overnight trips.

"The general feeling is: Don't shop in Canada at all anymore if it's possible," says Larry Kristof of White Rock, B.C. During a recent trip to Washington, Kristof bagged a $150 rotisserie he says "would be at least $100 more here." Others are shopping abroad without leaving home: Online purchases from U.S. companies are up by as much as a third this year.

Call for Retail Reductions

Haunted by the specter of fleeing tax revenue, Canadian officials are prodding domestic retailers to cut prices. On Oct. 31 the loonie hit a 50-year high of 106.17¢. The U.S. dollar has weakened because of America's slowing growth vs. the rest of the world, which tends to lower U.S. interest rates and profit growth. Longer term, many investors also worry about the large, albeit shrinking, trade deficit Uncle Sam has with the rest of the world.

On Oct. 23, Canadian Finance Minister James Flaherty convened a special meeting with retail groups in Ottawa to pressure them to "be responsive to the need to reduce their prices," though he conceded that "we're not going to force prices down." A few days earlier, Bank of Canada Governor David Dodge told consumers to shop around and demand "the best prices that they can get," while Ken Georgetti, the president of the Canadian Labour Congress, which represents unions nationwide, accused retailers of "greed, gouging, and bad citizenship."

Retailers are now nervous about the prospect of a weak holiday season, as shoppers head south to load up on gifts. Canada's strong economy, aided by the rising price of oil and budget surpluses, should spur healthy holiday sales—if people shop at home.

Retail chains such as Wal-Mart Stores (WMT), Zellers, and Indigo Books & Music cut prices to reflect the stronger loonie. But don't expect Canadian prices to sink to U.S. levels anytime soon. Diane Brisebois, CEO of the Retail Council of Canada, says high wages and transportation costs, along with the fixed exchange rates at which products are ordered in advance, make it hard for local retailers to match their U.S. peers on prices. And, she notes, "suppliers don't always lower prices to retailers."

Bargain Hunting

Canadian consumers aren't buying it—especially since the loonie hit parity with the U.S. dollar in late September. "Now, we're all equal," says Markham (Ont.) executive Tania AuYeung. She is among the many who are miffed at having to deal with dual price tags, listing one price in U.S. dollars and another that can be 25% higher in Canadian currency. Even some of the toll booths coming into Canada still give a discount for U.S. cash.

The rising discontent has U.S. retailers, especially those along the border, rubbing their hands together in glee. Even with longer lines at border crossings, their northern neighbors continue to come. "We see more Canadians in our store, and online sales are growing with the shift in their dollar," says Carolyn Beem, a spokeswoman for L.L. Bean in Freeport, Me.

And why not? Rachel Barney of Toronto goes to Amazon.com (AMZN)—instead of Amazon.ca—for her book purchases these days. As she puts it: "I won't pay a 50% markup for no reason."

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