The cross-border pain for Canadian retailers

Next time you want to go on that quick, cross-border weekend shopping trip, just think you bear the burden of steering Canada's economic outlook. Perhaps that's a bit extreme, but there is a link.

If there were any doubt cross-border shopping undercuts Canadian retail sales, a key factor in how an economy performs, one can look to the Wednesday's retail sales data to assess the latest impact.

The country's number-crunching arm says retail sales were flat in March, but volumes were up 0.7 per cent. More on the latter later.

The flat reading is adjusted to reflect price changes such as lower gas prices, which were a big drag on the overall numbers. And Canadian consumers have pretty much run out of gas on "relentless" competition south of the border over the past year or so.

"Much of the softness in both March and over the past year has been a weaker price story --- retail prices were down in March and have dropped over the past 12 months, no doubt in part due to the relentless competitive pressure of cross-border shopping," says Doug Porter, chief economist at BMO Capital Markets.

But there are times when a weaker Canada dollar keeps people at bay, which helped to boost car and truck sales, as well as clothing, and largely drove overall activity for the month's reading.

Six of the 11 sectors measured by the national number crunching arm showed gains, representing nearly half of total retail sales.

This is all important because there has been much focus on the economic impact of cross-border shopping as of late, particularly with big-name discount retailers like Target Corp opening shop in Canada.

Earlier this year, official data showed that same-day trips to the United States were on the rise, thanks in part to lofty Canadian and generally cheaper goods. Not to mention it's just fun to get out of the country for a different shopping experience.

But even policymakers are starting to take notice. The Bank of Canada noted earlier this year that low levels of core inflation reflect muted “price pressures across a wide range of goods and services,” highlighting increased competition in the retail space.

That situation has led some to frantically raise red flags at Canadian retailers, with the general message being: ramp up your online presence or suffer.

The underlying price softness points to a sluggish consumer, generally rattled by soaring debt levels, but one that is still managing to grind out modest underlying growth of between 1-2 per cent, says Porter.

All in all, that 0.7 per cent rise in volumes should help overall Canadian growth in the first quarter. This serves as yet another piece of the puzzle for retailers as they fight for the attention of those cash-strapped consumer.