Lower Prices and Weak Canadian Buck Trim Shopping in US

FEWER Canadians are crossing the border to shop in the United States because prices have dropped at home.

Retail analysts and economists say that a surge in cross-border shopping in the last several years has taught Canadian retailers a simple lesson: lower prices and improve service or go out of business. The exchange rate also has reduced the advantage American goods had. It costs $1.26 Canadian to buy $1 of US goods; a year ago it cost just C$1.12.

Yet higher taxes, tough unions, and government regulations are still keeping prices higher in Canada than they otherwise would be. Until that changes, some shoppers from Canada will still head south for bargains.

"Private enterprise has been able to make some efficiencies in distribution and pricing, especially in clothing and electronics," says John Winter who analyzes retail trends for his own firm, John Winter and Associates in Toronto.

Sony's television sets are now priced on a global basis rather than having a special Canadian price, Mr. Winter says.

"On a big set, say 33 or 34 inches, a shopper [used to be able to] save $1,000 going to the United States," he says. "That differential has almost disappeared."

Big ticket items such as television and appliances had been the big drawing card because "people won't travel long distances just to fill up the tank and buy some milk," Winter says.

Some prices have a long way to go to meet American competition. The prices of milk, cheese, eggs, turkey, and chicken are not set by the market, but by Canadian marketing boards. Set up to protect the farmer, they now add hundreds of dollars a year to an average family's grocery bill.

For example, a package of cream cheese costs US$2.18 in Mansonville, Quebec, while two miles south in North Troy, Vt., less than 79 cents will take it away.

Cross-border shopping started in earnest when the Goods and Services Tax (GST) was instituted almost three years ago. It added 7 percent to the cost of all goods and services except groceries. But an economist from Simon Fraser University says there are other factors that motivate people to shop in the US.

"You really have to look further than the GST as an explanation for the rise of cross-border shopping," says Herbert Grubel, author of a study titled "Cross Border Shopping: The Role of Economic Forces and Government."

Prof. Grubel cites several reasons why some Canadian prices cannot fall below those in the US, unless there are changes in the rules made by governments and trade unions:

* The distribution system demands special bilingual packaging and special warehouses to hold Canadian goods.

* Marketing boards make milk prices 67 percent higher in Canada than in the US.

* Canada's higher rate of unionization (about 20 percent in private industry versus about 12 percent in the US) raises paychecks and costs, especially in supermarkets. For example, British Columbia supermarket clerks earn double the average Canadian industrial wage. Annual pay can exceed $39,575 a year.

* Provincial and federal sales taxes and special taxes on gasoline keep many Canadian prices higher than they are over the border.

"Cross-border shopping has revealed the cost of Canadian regulation and controls which serves special rather than general interest," Grubel says. Competition from the US has already had an effect on how retailers price goods in Canada.