By John Schudlo
When Finance Minister Jim Flaherty met with Canada’s top retailers last month to urge them to drop their prices in light of the high Canadian dollar, many shoppers likely let out a sigh of relief.
Ever since the loonie pulled even with the U.S. dollar in September, Canadian consumers have been up in arms over the seemingly high prices they are paying – in some cases up to 20 per cent more than their American counterparts.
So when Flaherty decided to step in and “pressure” domestic businesses to price their products more competitively, shoppers welcomed the move.
And while this stand-up-for-the-little-guy routine made headlines, it didn’t make headway.
The Conservative government’s public urging was not so much a political stance as it was a political stunt, and any Canadians fooled into thinking that lower prices are coming soon thanks to government action are mistaken.
Flaherty is no champion of the average consumer.
Despite grand gestures and political posturing, the federal government has admitted it won’t actually be doing anything to bridge this supposedly unfair price gap, and prices probably won’t be dropping any quicker because of Flaherty’s efforts.
“It wasn’t a wake-up call for retailers,” says Kim Furlong, the Retail Council of Canada’s vice-president of federal government relations, speaking about the meeting with the minister. “Nothing that Mr. Flaherty said [at the meeting] triggered the retail industry to do more.”
Furlong says that despite Flaherty’s best efforts to imply otherwise, retailers have already been lowering prices as fast as they can to stay competitive in the face of increased cross-border shopping.
But because of inventory bought months earlier when the rate was less favourable against the greenback, prices will tend to lag six to 10 months after a currency change, so the benefits of the sharply stronger dollar will not be realized for quite some time.
And even at that, Canadians should not let empty rhetoric by federal government ministers inflate their expectations of what is to come.
While prices might drop, it is completely unrealistic for anyone to expect that Canada’s prices will ever mirror the American prices entirely.
Furlong says Canadian retailers have to contend with higher taxes, a higher minimum wage and higher transportation costs than U.S. retailers, and pass these costs on to Canadian consumers.
Also, she adds, Canada’s population is much smaller, which makes goods more costly here.
“Thirty million versus 300 million,” says Furlong, comparing the number of people living in Canada to the larger U.S. population. “These are economies of scale we don’t have.”
It is impossible to really know whether or not Joe Store Owner is using the rising dollar to his advantage. But regardless of whether overcharging is a reality or not, neither advice from Flaherty nor whining from the general public for that matter can lower prices.
Lost sales, on the other hand, will.
Increased cross-border shopping in recent weeks has already persuaded some major retailers like Zellers, Hudson’s Bay Co. and Wal-Mart to slash prices in an effort to keep customers on this side of the 49th parallel.
And retailers promise that more savings are soon to follow. People just have to be patient and let the market adjust on its own, they say.
Because no matter how much Flaherty rants about a particular business issue – conveniently earning the backing of those he is “defending” in the process – he won’t take any real action to force prices downward.
Not only is Flaherty a part of the most pro-business party in Canada, but he also has a history of fruitless consumer advocacy.
Just last year he went on a headline-grabbing crusade to pressure banks to reduce ATM fees. But his attempts resulted in no actual government action, no change in fees, and an eventual admission that governments can’t meddle in the private sector.
So ultimately – as the Conservative government is well aware – unless forced to do otherwise, businesses will stay loyal to their bottom line.
Competition is the only thing that will actually lower prices in the long run, while hot air – as always – will just blow over.