Increased Cost of Doing Business in Canada Felt by the Consumers

The summer has been good to Toronto’s fashionistas.  First, J. Crew takes its first steps to expand internationally, using Toronto as its guinea pig.  Second, Intermix follows suit.  Third, Ryan Gosling plays the bad boy in Crazy Stupid Love.  And the cherry on top?  The Toronto International Film Festival announces that Ryan Gosling will be in town for the debut of his movie, Ides of March.  As much as we love Ryan Gosling, let’s focus on what’s happening with J. Crew and Intermix.

Cashing in on J. Crew’s US halo effect with vacationing Canadian consumers, along with a surge of online Canadian consumers, J. Crew found Toronto to be a natural extension.  There was great anticipation over J. Crew’s launch of its first non-American location, which occurred last week.  Crowds swarmed the Yorkdale Mall location.  However, there was some back-lash.  J. Crew raised its merchandise prices by about 15% over its US prices.  The prices soared even higher for the online consumer in Canada, with an increase of over 50% compared to the US website.  There was significant criticism from the Canadian consumer, which J. Crew has advised will take under consideration.

Despite a surge in the Canadian dollar, the price difference between Canada and the US seems to be increasing.  US retailers justify the increased retail prices in Canada on the higher cost of conducting business in Canada: import duties, higher taxes and the cost of expanding the business internationally.  Unfortunately, the Retail Council of Canada is not surprised by this, citing that retailers normally raised retail prices by an additional 12% to 25% in Canada.  Given the geopolitical differences in Canada, there are fewer economies of scale, creating higher costs to distribute products, which is reflected in higher retail costs.

Given Intermix’s already steep prices, it will be interesting to see whether Intermix consumers in Canada will have the same experience as J. Crew consumers.  If yes and the Canadian consumer is turned-off by the inflated prices, this may be good news for Canadian competitors such as Aritzia and TNT.  (If you’re interested in learning more about TNT and pearls of wisdom from its owner, feel free to read this article).

By the way, Intermix has announced that it will officially open its Bloor Street location this Friday.  See you there!

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