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From the Publisher: November/December 2007 |
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Written by Sue Fredericks
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High Cost of the Soaring Loonie
The challenges brought about by the loonie reaching a
30-year high against the U.S. buck continue to mount. Not only are
manufacturers lamenting the loss of the competitive edge the weak
loonie gave them, but consumers are questioning price gaps of up to 24
per cent between Canada and the U.S.
Canada’s own finance minister Jim Flaherty is leading the charge to pressure retailers into lowering prices. He was quoted in the Globe and Mail recently as saying, “Prices should go down over all. Now, it won’t all happen overnight. It’ll happen over time, and different sectors of the retail economy have different realities in terms of pricing.”
Some major retailers have already committed to passing purchasing savings on to the consumer. Hudson’s Bay Co. planned to renegotiate supply contracts and cut prices anywhere from five to 25 per cent. These savings were expected to be in place in their Zellers locations before the first of November.
As we went to press, retailers were scheduled to meet on Parliament Hill as part of a day of lobbying for their industry. Flaherty had recast the event, making it longer than planned and inviting other major retailers to participate.
President of the Retail Council of Canada, Diane Brisebois, was hopeful that the meeting would bring to light that the real problem in the pricing disparity is that suppliers of national and global brands charge Canadian retailers 20 to 25 per cent more than they charge a U.S. retailer. Our buying clout as a nation of 30 million people just doesn’t compare to that of the U.S., whose population is 280 million. Other realities, such as inventory that was purchased before the loonie rose, will also come to light.
How does this affect our industry? Well there’s no question that wholesalers will enjoy the strength of the dollar when ordering product from south of the border and abroad. However, the timing of this may be affected by the lead time of when the product was ordered. Any savings should easily be passed on to retailers and potentially consumers. Think carefully on your pricing strategy – if you were worried before about Home Sense, Wal-Mart and the Bay
carrying the same holiday giftware you do, their prices may be even lower now.
When looking at fresh goods, it’s reasonable to think that consumers won’t resort to crossing the border for fresh bouquets, so florists may be forgiven for keeping a few pennies of extra margin on the sale of fresh goods made from imported blooms.
The cost of locally grown product may go the other way. Canadian growers have benefited from the weak loonie when shipping goods to the U.S. and many have grown their exports to levels where they represent a significant portion of their business. The higher loonie and our higher labour costs will make it very difficult for growers to remain competitive south of the border. This could lead to an increase of locally grown product in the marketplace as growers try to recapture more of the domestic market.
This could be an opportunity. The environmental movement wants us to reduce our carbon footprint and use more local products. Studies in Europe indicate that people will pay more for an environmentally friendly product, so there may be less price resistance for this product.
The answer lies in communication. When you are determining your product mix and suppliers, ask questions. When you are talking to your customers, tell them about your realities. While there may be some variations in who pays what for what, there shouldn’t be any change in the reality that everything we do is built on relationships.
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