Loonie shopping delusions

MADELAINE DROHAN

Globe and Mail Update

December 20, 2007 at 6:11 PM EST

OTTAWA — If the 1841 classic Extraordinary Popular Delusions and the Madness of Crowds is ever updated, it should include a section on the Great Canadian Cross-border Shopping Phenomenon.

The persistent belief that record numbers of Canadians are flocking to U.S. shopping malls armed with our muscular loonie would fit right in with the book's discussion of Tulipomania, the South Sea Bubble and faith in the power of The Alchymists.

All were instances where the public held fast to convictions in spite of overwhelming evidence to the contrary. All eventually imploded, but not before a lot of gullible people lost their shirts. It turned out that tulip bulbs were not all that rare and certainly not worth the fortunes being paid at the peak of the mania.

The king of Spain never had any intention of allowing the British South Sea company free access to Spanish colonies in Latin America, and if anyone has discovered how to magically turn a lump of ordinary metal into gold they have kept quiet about it.

While the belief in the cross-border shopping phenomenon may not be of the same magnitude as these crazes, it has many of the same elements. By running endless stories about back-ups at the border caused by historic numbers of Canadians heading south, the media, helped along by some analysts, have turned anecdotal evidence into accepted fact.

If people were willing to listen to reason, a special report by Statistics Canada earlier this month titled “Cross-border shopping and the loonie: Not what it used to be,” should have put an end to this flight of fancy. It did not. Newspapers relegated it to the back pages, if they ran it at all. Some high-profile analysts dismissed it entirely. Never let the facts get in the way of a good story.

No surprise then that when a separate release this week, also from Statistics Canada, said that same-day trips to the U.S. were at a seven-year high, it prompted a new rash of headlines along the now familiar, but inaccurate, theme of the supposed historic flight of the Canadian shopper southward.

The overlooked Statscan study pointed out that the actual peak of cross-border shopping was reached in early 1991, when an average of 4.9 million Canadians a month made day trips to the U.S. Compare that with last October, the month with the most recent figures available, of 2.2 million Canadian day trips.

Border crossings in October may represent a seven-year high, but they are less than half of what they were in 1991. As well, the population of Canada has grown substantially since the last peak was hit, so it would take more than 4.9 million day trips a month to reach the previous record on a proportional basis.

As for Canadian retailers, who are supposed to be suffering grievous injury from this betrayal, a quick glance at the trend in retail sales since 2003, which covers most of the period in which the Canadian dollar was appreciating, shows a line going straight up. If the retailers are suffering, it's not obvious from the sales figures.

Why then has this myth persisted?

Without a proper survey, you can only guess. But there are at least three possibilities and probably more.

The fact that cross-border shopping has not reached an historic peak seems counterintuitive. The simple calculation is that a stronger dollar equals lower prices in U.S. stores and therefore more U.S.-bound shoppers.

However, this calculation does not take into account human factors, such as the attraction of shopping locally, the desire to avoid long lineups due to heightened security at the border, and financial factors such as the cost of gasoline for the trip. It also misses the fact that there is no duty-free allowance for a same-day trip and only a small allowance after an absence of 24 hours. All of these come into the more complicated calculation that real people make when they decide whether to hop in the car and head south.

Short-termism is another factor. If you have a short enough time horizon, even minor movements can seem like big events. The fact that cross-border shopping has increased in the last seven years can be made into a big story only if you ignore everything that came before that period.

There's probably an element of human nature in this as well, with the media and some analysts not wanting to admit they got it wrong. In the same way that media corrections are almost always much smaller than the initial story carrying the mistake (or non-existent in the case of some television or radio programs), stories that run counter to a series of banner headlines often don't get the same play. Better to bury the news than admit you are fallible. So public perceptions remain unchanged.

Of course there has been an upside in all of this for Canadian consumers. Fears of empty aisles and overflowing shelves caused Canadian retailers to lower prices on U.S. imports more quickly than they might have done in the absence of a consumer backlash.

The downside is more difficult to measure. Our national delusion is now spreading beyond the Canadian border, with foreign news outlets repeating the claims. In its story proclaiming the flight of the loonie as the Canadian story of the year, Time magazine quoted a woman from Brampton, Ont., who said she no longer shops in Canada.

The Associated Press ran a story that was picked up by numerous U.S. media organizations, including MSNBC and ABC, that said Canadian businesses were being hurt because droves of Canadians were shopping in the U.S.

Harmless stuff perhaps, until businesses and governments start making real decisions based on what they are reading in news reports. They could be something minor, like adding more seats on U.S.-bound flights, or something major, like building a companion span to the Peace Bridge over the Niagara River linking Ontario and New York State.

Don't scoff. In a Buffalo News story this week, a bridge official cited the anticipated increase in Canadian shoppers as one reason to build that new and very expensive link.

Won't he be surprised when he finds out that the historic influx of shoppers was just an extraordinary Canadian delusion.