Finance Minister Jim Flaherty is asking a
Senate committee to look into the price gap that continues to exist between
products purchased in Canada compared to the U.S.. This is a tad scary if our
own Finance Minister doesn’t already have the answer to that question.
Back in 2009, when the Canadian dollar reached parody with the green back,
Minister Flaherty scolded Canadian retailers for “gouging” consumers and urged
retailers to “sharpen their pencils.” I was absolutely shocked that the person
in charge of our economy made such an absurd comment dealing with his own
portfolio. He clearly didn’t understand the inner workings of Canadian commerce
then and his actions lately indicate not much has changed. I heard him speak recently
on the John Tory show on CFRB 1010 in Toronto. Both he and Tory seemed to lean
on retailers as the primary culprits of greed, not passing obvious savings on
to the consumer. Here are two highly influential Canadians on the airwaves with
hundreds of thousands of Canadians listening and they are spouting out
ignorance. Retailers are on the front lines when it comes to consumerism. The
best comparison I can make is they are like social workers. They do all the
work, get paid poorly and have to put up with a lot of abuse. Minster Flaherty,
here is a cost free list of reasons why prices on some products are higher in
Canada compared to the US.
Before we start you need to understand the chain of hands
consumer goods potentially pass through before they make their way to your
home. Retailers buy the goods they sell from wholesalers. Those wholesalers (or
distributors) can look a little different and it’s these differences that will
determine who may be profiting more since our dollar increased in value. First,
there are manufacturers who produce goods themselves. These groups of
wholesalers are best represented by the auto manufacturers. GM sells to
retailers who in turn sell to consumers. Here is where we should be seeing
decreased prices – especially on products manufactured here in Canada. Second,
are the “brand marketers” like Nike or Apple who often have third party manufacturers
(for the most part overseas) produce their goods, which are sold to them then
to retailers (or directly to the public, as in both Nike and Apple’s case). These
guys will often import their goods from manufacturing hubs like China. Although
we have free trade with the US and Mexico, the free trade only applies to
products manufactured in these three countries. For example, Nike shoes
imported into Canada from China, have approximately an 18% duty that must be
paid out to – you guessed it – Mr. Flaherty.
The US has virtually no tariffs on those same Nike shoes. Here is one
very clear reason why Nike shoes have not come down in price in Canada. Third,
are the licensed Canadian distributors. These companies buy from the “mother”
company, for example Disney. These goods start by being manufactured overseas
(in most cases) who then sell to Disney, who sells to the licensee who sells to
retailers who ultimately sells to you. There’s the least amount of give in this
chain. If there are savings anywhere here, the licensor (Disney in this case) will
know it and will swallow up the difference and use the “Canada is a small
player” card. Canada is a relatively small player when it comes to buying power,
so this too can have an effect on prices and/or the availability of more
diverse selection. This excuse is sighted the most by distributors. I
personally don’t buy it, but reality is reality and when a retailer buys
product, the market (and their fixed expenses) will decide what you and I pay.
So there you go Minister Flaherty, that pretty much gives
you your answer – and it was totally free. Now go tell that Senate Committee to
do something else and stop the gravy train spending!
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