Zellers is cutting prices because of the high Canadian dollar

Zellers cutting prices because of the high dollar

JOHN PARTRIDGE,  Globe and Mail Update

Hudson's Bay Co. says it is set to pass on some of the benefits of the Canadian dollar's strength by cutting prices by anywhere from 5 per cent to 25 per cent on a number of everyday household items at Zellers stores across the country.

The cuts, which are to take effect starting Friday at all Zellers's 298 stores, follow negotiations with the company's suppliers and will cover products such as Pampers diapers, Windex and Glad garbage bags, HBC spokeswoman Hillary Marshall said.

The announcement came as the loonie continued its run above parity with the greenback, climbing another 0.8 cents (U.S.) to $1.035.

It is not clear how many products will be covered in the price cut program. Ms. Marshall said she was unable to provide a figure immediately.

Similarly, she was unable to specify how many of the prices are being cut to the same levels or lower than those charged in the United States, saying only that the company's research shows that “some” are lower than those charged by “some” U.S. retailers.

The announcement from the iconic Canadian retailer — now, ironically, U.S.-owned — comes a day after Bank of Canada Governor David Dodge urged consumers to demand better deals from retailers, which, so far, have mostly declined to cut prices in the wake of the loonie's surge to parity and beyond with the U.S. dollar.

It also comes a day after another U.S.-owned retailer, Wal-Mart Canada Corp., said it will chop Canadian prices for video games to U.S. levels, pricing “hundreds” of new releases at parity, as the Christmas shopping season rapidly approaches.

However, HBC's move also comes more than a year after Wal-Mart Canada began pressuring its suppliers for better prices to reflect the Canadian dollar's climb.

“We have worked with our vendors to obtain better deals on merchandise at Zellers,” HBC president Rob Johnston said in a news release. “We understand that the rising Canadian dollar has led to a demand for lower pricing and this is our attempt to provide real savings for Canadian families.”

The company, which was taken over 19 months ago by U.S. industrialist Jerry Zucker, is fighting for its own interests.

For one thing, it wants to lessen the incentive for cross-border shopping by Canadians.

“We need to do what it takes to keep you shopping here rather than hopping in your car and going on a trip across the border to shop,” Ms. Marshall said.

Statistics Canada provided evidence Thursday that cross-border shopping is climbing, as it reported that Canadian residents made 1.5 million overnight trips to the United States in August, up 4.2 per cent from July.

For another thing, HBC will apparently benefit in other ways from sweeter terms with its suppliers.

Ms. Marshall said the company started approaching its merchandise vendors several weeks ago about the rising Canadian dollar and the benefits they have been reaping from the currency's climb.

“We wanted to (a) know how we could renegotiate those terms to share that profit and (b) given Canadian demands for more equitable prices with the United States, how we could pass on savings to consumers,” she said.

The campaign is currently confined to Zellers, but Ms. Marshall said there is nothing to stop the company from extending it to its four other retail divisions, the Bay, Home Outfitters, Fields and Designer Depot, which, in all, boast 282 outlets. It also plans to extend the range of products covered as it is able to reach new deals with suppliers.

Ms. Marshall sought to play down the notion that HBC may already have been planning a sale at Zellers regardless of the loonie's new strength and is now opportunistically wrapping itself in the Canadian flag.

“The demand by Canadian consumers and the public interest for savings as a result of the rising dollar is certainly there,” she said. “So, as a Canadian retailer, we're stepping up to the plate to find those savings.”

She also said, however, that the playing field will never be entirely level in terms of the prices offered by Canadian and U.S. retailers, citing such barriers as differing tariffs and the costs of complying with Canada's bilingual packaging requirements.

A key reason retailers in Canada have been slow to lower prices is that the high loonie fattens their profit margins. But the pressure is growing, and Zellers's move will ratchet it up still further, economists say. commentators say.

“This should force the hand of competitors to trim prices as well,” Laurentian Bank Securities economist Sébastian Lavoie said in a note to clients Friday, commenting on the retailer's announcement.

Still, Mr. Lavoie also dismissed as a “pipe dream” any thought that the U.S.-Canadian price cap will be “fully eliminated” for the lucrative Christmas splurge.

“When Canadians step in a shopping mall during the holiday shopping season, we think there is a very good chance it will still cost more than if they were in a U.S. shopping mall,” he said. “We recommend any price-sensitive customer. . .look for U.S. prices first before buying.”