New cross-border shopping limits irk retailers

The new cross-border shopping limits introduced in the latest federal budget has some retailers seeing red, and that could extend to their balance sheets.

We Canadians do enjoy shopping, and we love getting a bargain. You can see the proof of that in the utter joy so many have expressed that American discount chain Target is setting up shop here in 2013. It’s almost as if fresh drinking water was being brought to a dusty, remote village. Hey everybody, our lives are improving! Hallelujah!

So no surprise that most Canadians cheered the new cross-border shopping limits set out in last week’s federal budget. You can now bring back $200 worth of goods duty free, instead of $50, on 24-hour trips. The limit has been doubled for trips of 48 hours, all the way up to $800. If you can’t wait for your local Target to open, or if you crave the high-octane rush of other types of American retail, this is good news.

Canadian border guards are silhouetted as they replace each other at an inspection booth at the Douglas border crossing on the Canada-USA border in Surrey, B.C. (Darryl Dyck/The Canadian Press)

But a lot of small business owners in border towns across the country are not exactly thrilled with the government’s new provision. Quite the opposite.

"I don’t understand it," says Marq Smith of Langley, B.C. "The government is supposed to be in our corner, not encouraging people to go south to spend their money. And they’re hurting themselves too, losing tax revenue. This doesn’t help us as Canadians at all.  I can’t figure out the logic."

Smith owns Western Powersports, a motorcycle store ten minutes from the U.S. border. He employs 11 people, running the local Yamaha and Triumph dealership, selling bikes as well as parts and accessories.

"With the dollar at par, it hurts us," he says. "Some things are cheaper south of the border, and if a guy can save 20 or 30 per cent by taking a little ride, I can’t say I blame them.  But why encourage it?"

Finance Minister Jim Flaherty was asked that question by reporters during a media scrum that followed a luncheon in Toronto last Friday. More than a few retailers had already voiced their concern about the new limits announced the day before.

Finance Minister Jim Flaherty meets with private sector economists in Ottawa on March 5. He says concerns over the increase in cross-border shopping allowances are misguided. (Sean Kilpatrick/Canadian Press)

"I am not terribly concerned about the cross-border shopping because we haven't changed the 24-hour rule," said Flaherty, pointing out that zero is still the allowance for duty-free goods if you’re out of Canada for less than 24 hours. As for the changes, he mentioned that Canada is trying to "harmonize" its policies with those in the U.S.

That harmonization has a price.  Some estimates suggest the change will cost the government $13 million in lost duty by 2012-13 and $17 million in 2013-14. That may indeed be small change and of little concern when a multi-billion dollar budget is being crafted — but it’s a bigger deal for entrepreneurs.

"Mom and pop shops in border towns are being decimated," says Smith. As for the damage to his revenue stream, he admits the new rules won’t exactly put him out of business, "But every little bit hurts," he says.

Smith says he’s always pointing out the benefits of shopping locally, both in email blasts to customers, and during visits with customers at the store. 

"All kinds of people are buying stuff on the internet, or driving down to pick something up  but what do they do when there’s something wrong with it?  By the time they ship it back to where they bought it, they’ve lost whatever money they think they saved buying it in the U.S."

Also, factor in the cost of gasoline for that trip, and whatever savings can be reaped by an American shopping trip quickly vaporize. 

But it’s not only the prices that entice Canadians to shop in the U.S. You often hear the comments that the customer service is superior at American retailers. 

I used Twitter to solicit some comments about the comparison between the shopping experience in both countries and got this comment from @pipey21: "selection & uniqueness; way more selection in the US & if i buy stuff in the US, chances are no one will have the same thing here."

@curryjazz writes: "selection selection selection and a much more competitive online presence."

In my last column I wrote about the phenomenon of ‘cash mobs’ — organized shopping trips to support local businesses.  There are people who want to boost the economy at home. But until Canadian retailers can match their counterparts to the south on selection and service, and get a little closer on price, some shoppers will max out on those new duty-free limits again and again.