The fall in the Canadian dollar’s value relative to the U.S. dollar has led Canadian retailers to anticipate they will benefit from Canadians staying home to shop.
Canadian retailers, you see, are concerned that the Canada Border Services Agency has been too lenient with cross-border shoppers in the wake of the increase in duty-free limits in 2012. They see a lower dollar as a tool in their competitive arsenal.
They are being short-sighted.
Canada’s population is spread in a long thin line with most of it within 100 kilometres of the U.S. border. A road trip to the United States is a logical and convenient tourism experience, and crossing the border to visit the U.S. is a long-standing part of Canadian culture. The traditional barometer of Canadian cross-border shopping has been Canadian travellers returning from the United States by automobile – both same-day and one-or-more-night travellers.
These numbers grew substantially as the Canadian dollar appreciated from the low of just over US$0.60 reached in 2002. In 2002, there were 20.8 million Canadian same-day auto travellers and 7.7 million one-or-more-night auto travellers.
In 2013, 32.3 million Canadian travellers returned from the U.S. by auto on the same day and 14.1 million returned by auto after a stay of one or more nights. Over almost a decade, there were increases of 55% for same-day travellers and 83% for one-or-more-night travellers. However, most of the increase occurred even before the 2012 change in exemptions.
These increases came in the wake of nearly a decade of decline after the cross-border shopping mania peaked in the early 1990s. At that time, the Canadian dollar had also been rising in value, and Canadians were drawn to the U.S. by cheaper gasoline and retail prices as well as a reaction to the arrival of the GST. In 1991, both same-day and one-or-more-night auto trips by Canadian residents peaked at the highest ever recorded: 59.1 million and 14.2 million, respectively. These numbers collapsed over the 1991-to-2002 period with drops of 65% and 46% largely driven by a depreciating dollar.
Despite the lamentations from Canadian retailers, cross-border shopping today is a much smaller problem than it was during the early 1990s, particularly if measured by same-day auto trips. While growth has been greater for one-or-more-night trips, it is difficult to blame this on cross-border shopping given that longer trips are more often done as part of a vacation rather than simply to shop.
In 2013, the year after the new exemptions took effect, the number of Canadian same-day auto travellers declined while the number of one-or-more-night auto travellers rose, which suggests that Canadians have been substituting longer trips for short day trips as a result of the more generous exemption. Same-day trips dropped by 0.2% while one-or-more-night trips rose by 2.7%. However, the growth in one-or-more-night auto trips was also down from 8.1% the year previous.
Cross-border shopping is a Canadian tradition and, by occasionally voting with their feet, Canadian shoppers have encouraged Canadian retail to compete more effectively. Despite a continuing price gap between goods in Canada and the United States, Canadian retailing has restructured since the early 1990s and Canadian retailers in general are perceived to be somewhat more competitive.
Moreover, the arrival of large American retailers such as WalMart and Target into the Canadian market has also made the Canadian shopping experience more akin to the American one.
Cross-border trips by Canadians concern Canadian retailers because they represent a leakage of business activity. However, seeking to keep Canadian shoppers captive behind their border is shortsighted given that, as a small, open economy, Canada stands to benefit immensely from the international flow of visitors and trade.
Canadian retailers and tourism operators would be better served by trying to attract more Americans into Canada – especially given the lower dollar and the recovering U.S. economy. After all, the border has two sides.
