TORONTO, Canada — Canada’s would-be fashionistas rejoiced this summer when J.Crew, the U.S. clothing retailer that counts First Lady Michelle Obama as a loyal customer, opened its first store north of the border.
Customers flocked to the late-August opening of the retailer’s 5,000-square-foot Toronto outlet. But some came away feeling gouged. Prices on average were 15 percent higher, before taxes, than in J.Crew’s U.S. stores.
J.Crew’s online prices added insult to stylistic injury. Prices on its Canadian website were as much as 40 percent higher than on its U.S. site, once shipping and taxes were included.
The jaw-dropping price difference cast a shadow on the retailer’s first foray outside the U.S. market.
Customer irritation forced the company's president, Jenna Lyons, to respond with a letter vaguely explaining that the difference “was necessary to keep pricing consistent with our new — and expanding — retail operations.” The retailer then removed the duty on online purchases, leaving prices in its store and on its website on average 15 percent higher than its U.S. prices.
The J.Crew incident reignited consumer anger over the fact that, for years, Canadians have been paying more than Americans for the same goods — 20 percent more, on average, according to the latest price survey. And many Canadians seem to have had enough.
The federal government responded to the growing frustration of consumers earlier this month by striking a Senate committee to get to the bottom of the price difference.
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“Canadians are rightly irritated when they see large price discrepancies on the exact same products being sold on different sides of the border,” Canada’s finance minister, Jim Flaherty, wrote in a letter to the committee.
“If we want our consumers to shop here, we need competitive prices,” Flaherty added.
It used to be that higher prices north of the border were blamed on Canada’s low dollar, which meant Canadian retailers had to pay more to import goods. But in 2007, Canada’s “loonie” hit parity with the U.S. dollar for the fist time in three decades. Since then, it has generally soared higher or been at par. Yet prices in Canada have remained higher than those in the U.S.
The last price survey by the Bank of Montreal found that a Blue Ray DVD of the movie, “The King’s Speech,” cost $24.99 in Canada and $19.59 in the U.S. when the exchange rate was taken into account. Cargo shorts at Gap cost $44.50 in Canada, and $38.71 in the U.S. And an 8 GB iPod Touch cost $249.99 up north and $200.89 down south. Books, cameras and cars also cost more in Canada.
On a basket of typical goods, the report found that Canadians pay an average of 20 percent more than Americans.
The Consumer Association of Canada insists shoppers are being taken avantage of, pure and simple. The higher Canadian dollar makes the cost of importing goods cheaper. Yet rather than pass on savings to consumers, retailers and distributors are boosting profits by pocketing the difference, the association charges.
The Retail Council of Canada, which lobbies for retailers, acknowledges that retail profits have gone up. But it blames the price gap on suppliers. Manufacturers are so desperate to keep their market share in the U.S., where the economy has nosedived, that they’re cutting prices down south and making up the difference in Canada, the council says.
Taxes on businesses are not an issue: In fact, corporate taxes are significantly lower in Canada than in the U.S. The Retail Council of Canada instead points to a retail sector that is larger and more competitive in the U.S., and to higher Canadian tariffs and duties on some imported products.
One example of high tariffs explains why Canadians aren’t flooding across the border to take advantage of lower prices. By law, Canadians visiting the U.S. can’t bring back anything duty free until they’ve been away at least 24 hours. Even then, the maximum is $50 worth of goods. After 48 hours abroad, Canadians can return with up to $400 of merchandise duty-free, and with no more than $750 of duty-free goods after seven days.
Americans, by contrast, can go shopping in Canada and return the same day with up to $200 worth of duty-free goods. A bill before Congress reportedly wants to increase same-day shopping exemptions to $1,000.
Washington has been pressuring Ottawa to increase the amount Canadians can bring back on shopping trips, but Flaherty has so far balked at the proposal.
Economists often note that the price gap is simply due to retailers charging what the market will bear. It’s another way of saying that Canadians — who also put up with higher mobile-phone rates and banking fees than Americans — may have only themselves to blame for higher prices.
J.Crew’s partial back down on its online pricing suggests that Canadian consumers may finally have learned that customers, particularly angry ones, are always right.