Op Ed on Retail Profits from Today’s Globe

Greed, gouging and bad citizenship

Special to Globe and Mail Update

What have Canadians gained from our loonie’s parity with the U.S. greenback? A more valuable currency should make the things we buy from other countries cheaper.

But, over the past five years, as the value of the Canadian dollar has appreciated against the American dollar, that has not been what’s happened. Canadian retailers have not lowered their prices — instead, they have used the rising dollar to gain excessive profits at the expense of consumers and the whole economy.

Their profits have soared. Return on their investment is even higher than in the booming oil and gas sector, jumping from a healthy 11 per cent to an even higher 16 per cent. In dollar terms, the last-quarter retail profits are running at $4-billion, almost twice the level of 2002.

While consumers are getting no breaks, big retail companies are not sharing these profits with their employees. In fact, they have actually cut wages. Average hourly earnings fell by 5 per cent in retail over the past year, even though an average retail worker makes 25 per cent less than the national average hourly wage.

profit margins

Greed, gouging and bad citizenship are the words that come to mind.

Retailers in Canada buy many of their products in U.S. dollars or related Asian currencies, but sell them in Canadian dollars. As the exchange rate swings in the loonie’s favour, their costs fall. Lower import prices should have been passed onto Canadian consumers as their revenues rose.

The Bank of Montreal estimates that, even with the Canadian dollar worth as much as the U.S. dollar, a typical basket of consumer goods costs 25 per cent more before taxes on this side of the border. While retail prices should not necessarily be identical, there is no justification for such a huge markup.

The government also has clearly failed workers and consumers. Both the Conservatives and Liberals plan across-the-board cuts to corporate taxes, which would boost retail and wholesale profits even more.

We need answers about why profit margins are so high and prices are not coming down. We also need a higher minimum wage to make sure a fair share of the gains go to retail workers.

Lower prices would be a boon to working families. They would also allow the Bank of Canada to ease up on interest rates, taking some of the steam out of the soaring dollar and making it cheaper for manufacturers and other businesses to invest in Canada

The negative impact of high retail prices recently was confirmed again this week as the Bank of Canada refrained from lowering interest rates, as the Americans have done recently, on the grounds that inflation is too high.

For months, the Canadian Labour Congress has expressed concern that the rising dollar is undermining our manufacturing and resource processing sectors by driving up the price of Canadian-made products in foreign markets. Indeed, nearly 300,000 well-paid manufacturing jobs have disappeared during the loonie’s surge from 65 to more than 100 U.S. cents.

Lower retail prices won’t save manufacturing jobs on their own. But they would mean lower inflation. Evidence of lower inflation would allow the Bank of Canada to reduce interest rates and provide some shelter from the high value of our dollar.

Ken Georgetti is president of the Canadian Labour Congress.

4 comments

  • Or we could just increase union organizing activity in the oil, construction, and retail sectors. Isn’t that the best way to progressives to take advantage of the labour shortage?

  • Lower import prices should have been passed onto Canadian consumers as their revenues rose.

    I’m still waiting for the lower prices I was promised when the GST was introduced to replace the hidden manufacturers tax. I’m also waiting for the lower prices that should have been passed onto the consumer due to the 25% reduction in corporate tax levels over the past six years.

  • Today’s globe has an interesting article which outlines the latest episode in which the bank of Canada and the finance minister at least talk about what ought to be done with import prices and the valuation of the dollar. As pointed out by the article some industry insiders feel that unless the BOC cuts rates, then they are mainly just jaw boning the issue. But at least they are talking about doing something. This I would say is winning half the battle. We now just need a cut in rates. Seeing the dollar hitting above 1.03 must without a decrease in import prices must be making Mr Harper sweat a bit. That is an election issue that could do some major damage to him, as the consumer has a fairly efficient relationship with their wallets. With the way the BOC and the finance minister have suddenly become aware of the problem is potentially a sign of that nervousness. Whether this actually results in any action or is merely window dressing for voters is another issue. Hopefully it is not the latter as if we end up with a run away dollar it will lead to some quite devasting effects for our economy. We have already had a manufacturing meltdown which has resulted in over 350,000 high quality jobs lost. What is the threshold on the dollar before rates come down to try and stem the tide. The run on the American dollar seems to be full throttle ahead and oil still keeps rising, so is there any reason to think that our dollar will stop increasing in value? Given the nature of the free marketeers on the hill, the road ahead could become a lot bumpier.

    I also thought Catherine Swift’s argument that it takes time to move through older inventories and that we should never be lecturing businesses on how to do business, was quite pathetic. The Canadian dollar has appreciated over 20 percent in the last year, have we seen that kind of move in prices. Well lets see, inflation went up by 2.5% and spooked the BOC in the last report. So that would be no. How old is that inventory anyway? The dollar has been appreciating since 2002, we have not seen any notion of systemic price reductions over that period. So her argument that it is price stickiness and that we have no competitive problems is a farce. Potentially is not a relevant question for the small business world as I do not see too many corner store Wal-marts.

    On the second point, I guess she is right, price gouging is pretty much a norm in Canada for big retailers and wholesalers, so we should know better than to try and stand up to the business community when it comes to pillaging the consumer. Come on now, is she really that arrogant to say that we cannot question the business world on how to do business. Gees.

  • dollar crashes through 1.05 and the band keeps playing, not sure what song but it seems like a happy tune.

    I guess my comment is, have we lost all control over our dollar. Given the statements today out of Flaherty’s office I would say yes. His arguement today was a high dollar will help Canadian businesses make investments in plant and equipment. They must be having a hell of a party, as nobody can be sober at the finance minister’s office. Investment by Canadian business is at all time lows. In a market economy isn’t it the promise of profits that typically entice investment? I don’t see any manufacturing profits with an out of control dollar raising at rates that are quite destructive. Dear Mr. Flaherty could you please turn down the music and focus on the medium to longer term implications of a run away dollar. It will be the consumers that revolt on lack of price reduction on the import front. It will be this self interest on a mass scale that creates the exodus of the tories voter support. Bring on a finance minster that actually has some notion that at least trying to manage the currency would be the proper thing to do given a runaway dollar. Potentially Mr. Flaherty is searching around for an invisible hand to give him help.

    And don’t get me started on the CIBC job quality report today.

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