CE and the Dollar

From the desk of Lee Distad's Professional Opinion:

Regarding the recent surge in the strength of the Canadian Dollar: there’s only one place in the daily newspapers where there are more poorly thought out arguments about economics than the editorial pages, and that’s the letters-to-the-editor page.

The pundits, whether professional or amateur, who are crying foul about price disparity on consumer goods north of the border mean well, but I have yet to see a single diatribe where the writer demonstrates an understanding of the consumer marketplace. To be honest, that might be explained by the fact that every day that I skim the editorials and the letters, I invariably come upon a plea along the lines of “shouldn’t the government be legislating price controls to protect us?” Usually, the paper ends up getting hurled across the room, so I might have missed one or two.

To keep this blog entry simple, let’s examine the two primary factors that govern what goods are sold for: volume and time. There’s a whole host of other factors, but these two are the big ones. I recognize that most people reading this have considerable experience in our industry, and know all this already, but I’ve been building up a head of steam for weeks and need to get this off my chest.

Keen eyed readers will have noticed that foreign exchange isn’t one of the top two reasons. That’s because of time. The products on the shelves this fall were ordered and the contracts signed anywhere from six months to a year or more ago; and the distributors and agents agreed to pay a price that was dependant on a Canadian Dollar that was anywhere from 80 to 90 cents U.S. at the time the deals were made. The product sitting on shelves and in the warehouses wasn’t paid for at par, so for prices to line up with what can be seen across the border, it would be Canadian businesses taking it on the chin. Does anybody reading this think that’s fair?

Speaking of fairness, it may not seem fair that goods cost more in Canada, but a large part of that comes down to volume. The bottom line is that the United States has a population of roughly 300 million people, and Canada has only a little more than a tenth of that. Whether retail store buyers are purchasing seasonal programs for apparel, electronics, or anything else, the amount that Canadian retailers and their suppliers will purchase from overseas manufacturers will never, ever come close to the consumption of our neighbour. As a result American companies pay less for their goods than do Canadian companies because of the volume discounts that they receive. It seems pretty simple.

Or maybe it’s not as simple as that. This week Wal-mart fired the first shot by announcing that they would sell HALO3 at the same MSRP in Canada and the U.S. In one stroke, Wal-mart scored bonus points with consumers, and made every other retailer look bad for not jumping to the pump.

I guess that you could say that there’s a third key factor in pricing: power politics. I was talking with a friend yesterday who represents a number of electronics manufacturers. He was keen to find out if I had heard rumblings of any vendors or retailers getting ready to announce exchange-rate related markdowns on electronics. To hear him tell it, our industry is currently in a Spaghetti Western-style showdown in the middle of Main Street, waiting to see who’s going to draw, or blink, first. The holiday selling season is typically a time for pricing silliness anyway: during a two week span back in October 2002, I had to re-price all the DVD players on my shelves seven or eight times as vendor-driven markdowns were communicated to us. I think that the flat-panel bloodbath of last year is still fresh in our memories.

I’ve got a niggling feeling that we may see a price war this Christmas that makes last year look mild by comparison.

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Wal-Mart Canada Sets Precedent By Offering Halo 3 at U.S. Price

In a move that can be considered both strategic and smart, Wal-Mart Canada has decided to offer the highly-anticipated Xbox 360 video game Halo 3 at the same price that it will be offered in the U.S.: $59.83. This will be about $10 cheaper than other Canadian retailers will be charging: both Future Shop and EB Games are currently advertising the game for $69.99 (the limited edition for $79.99).

This move makes sense for any retailer given the current strength of the Canadian dollar (it's virtually on par with the U.S.!), but especially for Wal-Mart, which prides itself on always offering the lowest prices.

Wal-Mart says it will offer Halo 3, which is officially released tomorrow (Sept. 26), at that price for an "extended period".

"We've been negotiating with suppliers for more than one year, based on the belief that a high dollar and favourable business conditions should translate into lower prices for our customers," said Jim Thompson, Senior Vice President of Merchandise at Wal-Mart Canada.

Don't think that other retailers have just been standing by, though. Future Shop will be opening 103 of its 127 stores at midnight tonight in celebration of the game's launch so customers can "get it first", as the company's slogan goes.

Hmm...that's a tough one when it comes to hard-core gamers. Do they want to "get it first" or get it cheapest? My presumption is that the tried and true gamers will be hauling their butts to Future Shop tonight to grab the game before anyone else; while the budget-conscious parents and students (17 and older, of course, since the game is rated M for Mature), will stroll over to Wal-Mart at a later date for the cost savings.

Going forward, only time and sales will tell. But if our dollar keeps up, it will be interesting to see how pricing of CE/IT product changes, or fails to change, in Canada.