Retail profits, higher salaries at heart of price gap with U.S.: manufacturers

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Shoppers walk past a sale sign in a mall in Ottawa on December 21, 2010. THE CANADIAN PRESS/Pawel Dwulit

OTTAWA - There are many reasons why retailers charge consumers more in Canada than they do in the United States, but one is simply that they can, witnesses told a Senate committee Tuesday.

Representatives of Canada's manufacturers and consumer advocacy groups focused on the same point — the lack of competition in Canada's retail sector — as a possible key component for the continuing price gap between the two countries.

Bruce Cran of the Consumers Association of Canada told the committee that he is somewhat baffled by what has happened over the last five years, a period during which the loonie gained about 50 per cent in purchasing power as it has risen to parity with the U.S. dollar.

And yet, he said, his own sampling of the price differential over that period shows that the gap has never fallen below 25 per cent.

An informal study conducted by Bank of Montreal economist Douglas Porter last spring came up with similar results, putting the average differential at about 20 per cent.

"How can a snowmobile that's made in Quebec sell for a third less in the United States?" Cran asked.

"How can a pickup truck manufactured in Canada sell for $5,000 or $6,000 less across the line? Why is a book printed in the United States selling for a third to half more in Canada."

Even ordering a book online from the U.S. jacks up the price by up to 30 per cent if the customer lives in Canada, he pointed out.

"If there's an answer, I have yet to hear it," Cran said. "I finally figured out you can join a U.S. ISP (Internet service provider) and get your Amazon books down there for about 25 to 30 per cent less."

A published study from Ryerson University finding a trend toward concentration in Canada's retail sector since 1980s could provide some of the answers, said Michael Janigan, head of the Public Interest Advocacy Centre.

In earlier testimony, the committee heard that the top four retailers garner 28 per cent of all retail sales in Canada, compared with only 12 per cent in the United States. And profits among Canadian retailers average 12 per cent of sales.

"While increases in size (of retailers) may have increased profitability, they have also given big chains more market power," Janigan explained.

"High levels of concentration tend to lead to standardization and a lessening of competition."

That's a theory that bears closer scrutiny, Janigan added.

He, as well as a Quebec consumer advocate, recommended that the Senate committee ask the Competition Bureau of Canada to conduct a market study to determine what is really behind the "stickiness" of prices regardless of fluctuations in the currency.

Since launching hearings last fall, the Senate finance committee has called a variety of witnesses, from government officials to industry groups. But on Tuesday, some senators appeared as confused about the issue as they were when they began.

Factors they have heard included transportation costs, higher tariffs on imports, Canada's protectionist supply management in poultry and dairy, higher minimum wages paid by retailers, higher taxes on such items as gasoline, alcohol and tobacco and preferential treatment by exporters courting the bigger U.S. market.

In some cases, there's even different pricing policies within product lines. For instance, auto manufacturers consider Canada to be predominantly an entry level market, the senators were told, so there is often no price disparity on lower cost vehicles, but a wide gap for luxury lines.

The problem for the committee, said Senator Pierrette Ringuette of New Brunswick is that each sector appears to have its own unique reasons for why prices are what they are.

"There doesn't seem to be a specific recommendation, because depending on the sector you are looking at, there's a variety of different issues," she said.

Martin Lavoie of the Canadian Manufacturers and Exporters said manufacturing and wholesale costs are not to blame, saying they represent only a small portion of the overall consumer price.

Where the most likely answer lies, he said, is in labour costs and profits, which combined make up 60 per cent of retail sales.

The Senate committee has until June 30 to report its findings.