The Great White Barrier: Why Canadian consumers are missing out on American brands
“Go north,” they said. “It’ll be great,” they said. We’ve seen U.S. business giants such as Target, Sam’s Club, Sony, and others come and go in the Canadian market, and fail to establish a foothold in expanding their U.S.-based empires. At first glance, expanding over the 49th parallel into Canada seems like a wise choice, and often it is. Canadians have plenty to contend with in purchasing power compared to their southern counterparts. According to Strategy Online, Canadians spend more than Americans, for instance, in online shopping.
The Canadian and American consumer climates might be similar, but they are not the same. Canadians earn, net, less on average than Americans do, and their goods and services cost more on average than their southern neighbors. Some companies struggle to tap into this potential. What obstacles could prevent companies from succeeding?
Two things are certain: tax and customs
Soon after Trump stepped into the White House, he slashed corporate tax rates down to 15 percent in an effort to stimulate economic growth. In comparison, the Canadian corporate tax rate was and remains structured into two parts: the federal and provincial. Together, they add up to about 27 percent, a significant difference from the U.S. rate. Companies could think twice now about moving into Canada as a result, and this tax difference trickles down into the customer’s pocket in different forms.
Canadians pay value-added taxes (VAT) on most products, often double what Americans pay in sales tax in most states. Additionally, for products coming in from the U.S., Canadians pay customs on items that cost $20 and up. By contrast, Americans pay on an $800 threshold.
Why? The Retail Council of Canada (RCC) claims it’s protectionism. In its defense, a study commissioned by the RCC found that the cost to Canadian jobs would be in the hundreds of thousands, and Canadian online sellers would see a gap widened between them and their American competitors by 25 percent if the threshold were increased to just $200.
But Canadian buyers ultimately lose out. As the same report shows, Canadians collectively lose $18.7 billion in disposable income due to these customs regulations. It’s rather difficult to argue against those protectionist measures, but they certainly hurt the Canadian consumer’s wallet and the opportunity for American sellers to make a successful market entry.
Pumped up gas prices
Even after passing the customs hurdles, transporting items to brick-and-mortar stores or directly to the customer isn’t necessarily cheaper or easy. Take into account the size of the country and the vast distance trucking or air freight, which is expensive as it is, has to travel to deliver items. While the vast majority of the country’s population resides within driving distance of the border with the U.S., transporting goods across the provinces and inside them takes time and money－broken down in the simplest commodity, it’s fuel.
Per liter, as of August 2019, Canadians pay $1.29 CAN. For comparison’s sake, in the U.S., the national average cost of gasoline in September of 2019 was $0.90 CAN, according to AAA－a monstrous 43-cent difference. Who covers the price difference? The Canadian consumer.
Not speaking my language
This is the biggest one. Canadians will always say they are not American, and it couldn’t be any more clear in how each one shops. Canadian shoppers have a reputation of looking for value in what they spend on, and Americans’ commercial styles don’t necessarily have the same desired effect. Moreover, for Canadian shoppers seeking out the prices and customer experience found right over the border, American retailers have to be able to replicate it in Canada.
Target is the poster child of a U.S. company that failed to understand Canadian attitudes. After a grand announcement to open over 100 stores in Canada, the department store found itself shuttering all the franchises in just two short years. Many speculated on what really happened, but the most critical underlying problem was grasping cultural differences. Canadians, facing a higher cost of living and fully aware of lower sticker prices on the other side of the border, were not prepared to pay more. On top of the noticeable price differences, Target found itself understocked and undersupplied for goods found in American stores. They were simply unable to mirror the brand they had built in the U.S. and live up to the initial hype.
For businesses looking into Quebec, Canada’s second-most populous province, language still remains an obstacle. Aside from Federal mandates that products must be in both French and English, which already adds to the manufacturing cost, provincial laws in Quebec force businesses to have store signs in French primarily and optionally in English. Employees must also be bilingual, arguably a non-factor given that it’s a French-speaking province with a workforce to support the demand. But provincial powers want to take the matter further, by eliminating “hello” from the “bonjour/hello” customer greeting. While such mandates don’t necessarily hurt the bottom line, they can complicate matters in customer relations and cause political backlash－not so smooth for someone considering business expansion.
A diverse population with an appetite for American products makes Canada ripe for the taking, but businesses need to be aware of what lies ahead and plan accordingly. Whether it’s higher taxes, fuel costs, or protectionist taxation standing in the way, remember that it’s not always as easy as it might seem to expand into the Great White North. Researching and understanding the mind of the Canadian consumer is a critical part of the operation of expanding, and not assuming that Canadians are parallel to Americans. If not, companies could find themselves taking a seat next to Target. Embracing technologies like Ladingo will help businesses to penetrate the Canadian market in a seamless way, specifically in the eCommerce space.
Hagar Valiano Rips is the CEO and co-founder of Ladingo – a technology company that enables online sellers to provide affordable and seamless international selling and shipping of large items such as furniture, fitness equipment and sports goods and more, to online shoppers – individuals or businesses overseas. Hagar Valiano Rips is an entrepreneur and dynamic professional with over 14 years of diversified experience in business and product development across the internet industries. She started her first company at the age of 23 and sold it at 25.