While Canadians remain avid cross-border shoppers, the growing currency gap and a stricter trade environment created by the new United States-Mexico-Canada Agreement (USMCA) could impact future spend levels, says eMarketer.
Cheaper alcohol and gasoline have long enticed Canadian shoppers, but factors such as broader product assortment have helped the cross-border shopping phenomenon extend to e-commerce. Domestic e-commerce options have traditionally “paled” in comparison to those offered in the U.S. and other international markets, said senior eMarketer analyst Paul Briggs.
International Post Corporation’s “Cross-Border E-Commerce Shopper Survey,” conducted in October, found that more than half (53%) of Canadian cross-border digital shoppers sourced goods from the U.S., while 30% bought from China and 4% from the U.K.
But the trend of heavy cross-border shopping is “reversing” because of the weakening Canadian dollar and a growing number of “quality domestic options.”
While it has yet to be ratified, the USMCA is also expected to reduce cross-border shopping, primarily because of a new provision around an increased “de minimis threshold” (DMT)—the value at which goods are free from duties and taxes when crossing borders.
It was just C$20 prior to last year’s high-profile renegotiation around the North American Free Trade Agreement (NAFTA), but lobbying by U.S. retailers and shipping companies saw the DMT raised to $150 for exemption to duties and $40 for exemption of sales taxes.
However, the Retail Council of Canada (RCC) has said that Canada “dodged a bullet” when it came to the USMCA, noting that U.S. demands for a US$800 DMT would have been “devastating” to Canadian retailers and the nearly two million people working in the sector.
The RCC said that it will continue to “level the playing field” between Canadian retailers and online vendors shipping into Canada. “Particularly on goods that are no longer manufactured in Canada, RCC believes there is no reason to impose high duty rates on goods purchased by retailers, which have become a hidden tax on Canadian consumers,” it said.
Another 2018 study, “PayPal Cross Border Consumer Research 2018,” found that 37% of digital buyers in Canada shopped domestically only, well short of the U.S. (66%) and U.K. (62%).
The study notes that, generally speaking, lower-value orders are purchased from the U.S., with more valuable items obtained via domestic sites. According to the Canadian Internet Registration Authority, 42% of Canadian e-commerce shoppers opted for U.S. sites on orders of less than $100, compared with just 15% on Canadian sites (see chart above).
The opposite was true when the order value exceeded $500, however, with 39% of shoppers opting to purchase from a Canadian vendor, compared with just 15% for a U.S. company.