BrainTrust Query: Who says Canada is the 51st state? Not retailers.
I was perusing the Globe and Mail and came across a few articles about U.S. retailers coming to Canada. For those of you in the know, Toronto just got its first J. Crew store and Torontonians were in great anticipation of its arrival. Toronto is now home to a slew of American brands such as J. Crew, Victoria’s Secret and, coming soon to a power center near you, Target.
We Canadians up here in the tundra love American retailers, and most will have a story to tell you. Mine involves my wife finding a $1.48 dress on Target’s clearance rack at Sawgrass Mills in Florida.
Why do we love American retailers so much? Simple: because of what they do in America. We love sneaking across the border and doing some day-shopping or hitting the stores we love in South Florida, Las Vegas or Scottsdale while on vacation. So, why shouldn’t American brands come to Canada and let us have what we want? From an expansion point of view, Canada is a great market — decent economy; homes still have their value; credit is still available. The problem lies in the execution, and I can tell you, I am not impressed.
Getting back to J. Crew, for some reason, planners and directors felt that Canadians won’t mind paying 15 percent more for its items, nor would they mind paying duties and taxes on online purchases, making it closer to 50 percent more. J. Crew eventually backtracked on the higher prices, but the question remains: if our dollar is close to par, what drove the decision to charge our polite population more than our U.S. friends? Is this the way to start a relationship?
Then we have Target (or soon will) — finally, a mass merchant that sells semi-decent products at semi-decent prices.
However, I hate to be the bearer of bad news but, according to an inside source, Target is simply rebranding the existing Zeller’s locations. Aside from some minor cosmetic and plan-o-gram changes, there will be nothing new — same (presumably) unmotivated and disgruntled employees, same weak merchandising allotment and same uncompetitive pricing. Canadians aren’t getting the same Target products as our southern neighbors, we aren’t getting the same deals — and we aren’t getting Diet Cherry Coke!
Even our Walmarts are lacking in the ‘explosive savings and experience’ department. I feel like I’m actually saving money at a U.S. Walmart where, here in Canada, I don’t. (I do not consider two cents less than their competition saving money to live better.)
Best Buy, Victoria’s Secret (according to my wife), Williams-Sonoma, Pottery Barn and others are guilty of offering something less than their U.S. locations.
So I have to ask again, what’s so different about the Canadian consumer? Yes, we are different. Yes, we are conservative. Some of us even fulfill the “Canadians are polite” stereotype. But we aren’t stupid.
Discussion Questions
Discussion Questions: What do you believe is behind U.S. retailers’ strategies (allegedly) of offering different products and higher prices to Canadians? Do you believe there are differences between Canadian and U.S. consumers that warrant different merchandising and pricing approaches?
Having lived and worked in both countries, and with all due respect to my Canadian brothers and sisters, the Canadian market, for most U.S. retailers, represents a dollar value in the range of the state of New York. We just don’t add up to much. So, as a market, we often find ourselves getting skimmed with higher prices, to make selling here worth the effort. Don’t shoot the messenger but we’re just not a volume market.
The prevailing wisdom a few years ago was that Canadians shopped “differently” from shoppers in the US. The retail world was not as robust as in the US and the belief was that Canadians bought less, kept purchases longer, and preferred “quality” to “quantity.” They were allegedly more tuned to “value,” which translated into finer quality with a longer life span and a higher retail price. You rarely saw the kind of responsiveness to promotions in Canada that you did in the US.
Was this true then? Opinions vary. Is it valid today? My sense is that Doron is on to something. Retailers should take another look at assortment management and pricing strategy for our friends to the North.
No one will admit it, but Doron is right. There is a persistent US tendency to think that Canadians (and pretty well every other nationality) are just not quite as bright and will accept the ‘crumbs from the master’s table’. After all it’s “just” Canada.
If we could ever see all at one time where Canadians have infiltrated US academia, real estate, sports, show business — and business generally — it might spur some to start erecting a 5,500 mile fence. Give Canadians a geography or history test about the US and Americans one about Canada and see who scores highest.
We in the US need to wake up and realize we don’t know it all. Other countries do a lot of things better than we do and we need to learn from them and treat them with the respect they deserve. For example in a Canadian Costco you can not only get fries, you can get poutine! Wake up America!
A couple of observations from my experiences in Canada as well as general comments/questions that would be important aspects of the debate:
1. Some big differences exist regionally in Canada, e.g. Ontario and Quebec needs are not the same.
2. Is the cost to serve in Canada the same (taxes, distribution, real estate, dual-language obligations etc.)?
3. Retailers are not always as in control of the distribution of products they provide across international boundaries, e.g. electronics products may launch at different times.
4. US retailers have often struggled in Canada due to some strong Canadian players.
5. The retail market is a little different there and the channels and niches are not the same as US, e.g. grocers tend to have a conventional and discount format.
6. There are social, cultural and diversity differences that mean a US solution wouldn’t automatically map straight to the Canadian market.
7. Cross-sector loyalty programs play a big role in the Canadian market.
Not much of a point of view from me here, but some considerations that are important.
U.S. retailers charge higher prices to Canadians because they can get away with it. We are sort of like the bullies of North America. Canadians would like their country to have USA’s buying and selling power so they could get the price levels below the border.
We must be careful not to paint this picture with too broad a brush. Doug may be closest to right; ROI is a key component of pricing and the Canadian market is, relative to the US, fairly small but geographically quite large.
US retailers’ product pricing varies geographically in the lower 48 and these differentials can be substantial. In fact, margin requirements in places like Alaska and Canada are higher than they are in the US due to logistic costs and volume constraints.
That said, where there is smoke, there is fire. American retailers should be seeking to provide products and services at prices that drive customers into their stores and not across the borders.
I simply don’t have the opportunity to research this question right now, but here is the input I would look for to prepare a response. I think the one example given that cites over $90 in tariffs and taxes in an approximately $125 difference is at the root of this discussion. I don’t believe Canadian shoppers are naive and would simply pay higher prices without considering other options. We hear constantly about how US income taxes are out of line with the rest of the world, but we don’t hear much about the lack of charges on the US supply chain. Between Value Added Taxes and tariffs, much of the revenue to the Canadian government comes from the manufacture and distribution of goods. This could be the culprit in higher final costs.
So to really answer this question we need to know more about the fees on the supply channel, the price point of competing goods in Canada, the profit margins of retailers in Canada, etc. The Economist magazine is famous for their “Big Mac Index”. They compare the cost of a McDonald’s Big Mac around the world to its price in the US. According to the latest calculation, a Big Mac costs $5.00 in Canada verses $4.07 in the US. This 25% higher price could be due to a lot of things, but one of the factors The Economist has tried to eliminate is differences due to relative wages. Even after adjusting for wages, the price in Canada is still 25% higher.
The lesson in all this may be for other US brands considering a foray into Canada. It may be that they can better reach the Canadian consumer by forcing them to carry their own goods across the border. Instead of dealing directly with Canadian charges, brands should line the borders with manufacturer outlets and let the customers deal with getting the product home. I forget the exact number, but I believe well over 75% of the Canadian population lives within 100 miles of the US border.
All great comments, especially Doug’s, when it comes to ROI. The bottom line is the ‘experience’ the Canadian customer has. It doesn’t feel the same as if we were shopping south of the border. And if ROI was the case, why did J. Crew roll back their price increases? We hosers don’t like to be hosed!
Go back and re-read what Ian and Doug said. I can’t say anything better or more to the point.
My grandfather was born in Canada and, having spent a good deal of time in both countries, I’m casting my vote with the Holy (?) Trinity of Doron, Ian Percy and Gene Hoffman.
American retailers, media, politicians … wait … just make that Americans in general … have a long, if not distinguished, history of either taking Canadians for granted (in the patronizing way you would take a mildly inbred cousin for granted) or exploiting them unmercifully.
Yes, the tax structure is different.
Yes, the population hasn’t expanded to fill the geography.
Yes, they’re sticklers on little meaningless things like the environment.
Yes (horrors), there is that whole dual language issue.
And, yes — worst of all — surprise, surprise, Canadians insist on regarding themselves as an independent nation and not some vassal state in thrall to its Southern (and Northern) neighbor.
The fastest way to grow a successful retail enterprise is to begin by respecting your customers — even (shudder) if they are Canadian.
Taxes, tariffs, labor, compliance, and supply chain costs aside, retailers charge differently in Canada and offer a different product assortment because they believe these practices will result in more profit. This should surprise no one as retailers do exactly the same thing in the US from state to state and from large city to rural outlet. Go shopping in NYC or LA and you will have paid more for the same products than you would have if you had done your shopping in Dayton, OH or Glendale, AZ.
And if you’re desperate for Cherry Coke, let me know and we can work out a trade for Blue Light, made in Canada and not offered in Phoenix.
This seems to be much ado over a rather small sample size. (I’m not saying Doren, et al are wrong, just that I’d like to see more “proof” than subjective assessments on two stores.) And as others have pointed out, it’s hard to comment without being familiar with the tax and regulatory structures, paying for VAT and (even) customs. What should the retailers do, absorb these costs themselves?
All this time I thought the American retailers charged more in Canada because they felt like they had to add more lighting due to their impression that Canadians were afraid of the dark!
As silly as that sounds, it is likely as silly as most of the notions that retailers have had to date in trying to expand to Canada. There are a lot of misconceptions.
First is that their dollar is worth less so that the price needs to be higher to earn the same. The truth is the exact opposite.
This is very akin to the discussion recently on consolidation of retailers even within the U.S. Markets are different. American retailers have not taken the time to understand that the market is different, but differences need to be understood and based on facts, not assumptions or misconceptions.
There are likely extreme dramatic differences in retailing in the Maritime provinces versus Calgary — but it’s all Canada. There are likely Canadians who are in fact afraid of the dark, but not many. We don’t know it all. But if we asked Canadians, my guess is that they would even help us out!
The only final comment I would add to the discussion is this: If (we) Canadians are truly disillusioned and outraged with American retailers charging more than expected and delivering less than expected, then we ought to put more effort into growing outstanding Canadian retailers like Lululemon to name only one example.
As an industry and with the help and support of government, we need to nurture and promote the development of more great Canadian retail.