With the Canadian dollar sinking below the 70 cents US level, the retail industry is wondering how this currency crisis in Canada is going to impact the sector.
“In short, this means Canadians are going to pay more for a wide range of goods originating in the U.S.. Add to this the prospect of Canadian tariffs on Chinese goods and it’s a recipe for further inflation. Of course it will also mean that Canadians travelling to the U.S. will suffer on exchange rates,” said Doug Stephens, Founder of Retail Prophet.
“However, it will benefit for Canadian companies who do significant business with the U.S. and invoicing in U.S. dollars. That’s assuming they’re not selling a product or service that becomes subjected to U.S. tariffs.”
Sylvain Charlebois, Senior Director of the Agri-Food Analytics Lab at Dalhousie University, said a weaker Canadian dollar increases the cost of imported foods, putting immense pressure on retailers to either absorb those higher costs or pass them on to consumers.
“This could worsen inflation, especially for price-sensitive categories like food,” he said.
“While a lower dollar creates challenges, it also opens doors for domestic retailers and manufacturers. Canadian-made food products may gain a competitive edge as the price gap with imported alternatives shrinks.”
David Ian Gray, Founder and Strategist of DIG360 Consulting, said the Canadian retail scene is run by US-based chains.
“For those publicly-traded especially, this means bringing “home” annual earnings from Canada has been significantly discounted of late and a further drop in the loonie makes it worse. This can chill further expansion here and possibly cause some pull backs. I believe that a factor in Target’s decision to abandon Canada was influenced in no small part by a significant drop in our dollar while they were in the midst of their struggles here,” he said.
“We are also very reliant on trade for the products we sell here to Canadians. This varies by product category where cars and parts are predominantly from the US, when not made here at home. Fashion on the other hand is mostly imported, with China, Vietnam and other countries significant exporters.
“When our dollar falls in relation to the source nation, retail merchants have to spend more, leading to price inflation pressures. Even when we source outside the US, often those currencies ebb and flow with the USD. More importantly, the talk of our dollar and tariffs and other economic disruptors creates uncertainty in boardrooms. This is no small impact on our domestic HQs, as it can pause investment and expansion. The lone silver lining? Canadian consumers are more apt to buy in Canada. We’d expect a continued drop on online purchasing from US sites or cross border shopping.”
George Minakakis, CEO of Inception Retail Group and Author of “Predictive Leadership – How Humans and AI Will Transform Organizations, Innovation and Competition, said it’s anybody’s guess on what news is impacting the Canadian currency.
A number of factors are influencing that including the threat of US tariffs and economic nationalism, Canadian politics and the Bank of Canada’s policies on interest rates. They are all converging.
“However, the impact on retailing means higher wholesale costs, which leads to pressure on margins and, ultimately, higher prices for an already stretched consumer. However, history reminds us that cross-border shopping also exists in some markets when the Canadian dollar is attractive. Retailers will have to find new sources with both reliability, quality, and price stability in supplies to mitigate future scenarios, and the time to do that is now,” said Minakakis.
“The challenge ahead is where the new Trump Administration will land with its threat of tariffs; if it happens, there will be an upward-downward movement on the dollar. That will have far more significant impacts than what we are seeing today. Retailers may discover that Canadians could begin their national movement for made-in-Canada or Canada-friendly trade partners, potentially applying to everything from clothing to cars. I am referring to all this as the power of shifting trade winds. Either way, the dollar is trading at some level of uncertainty.”
Bruce Winder, a retail analyst and author, said as the Canadian dollar weakens, Canadian retailers face increasing headwinds and in some cases at least one tailwind.
“To the extent that Canadian retailers import products or buy products from importers, their cost of goods sold goes up, thus driving inflation,” he said. “In addition, any service providers that charge Canadian retailers in US dollars or other currency will become more expensive when adjusting for currency. As it relates to cross border shopping, more Canadians will shop at home as international products become more expensive when including currency.
“If a Canadian retailer has international operations (like lululemon) their international profits will be worth more when converted to Canadian dollars.”
Liza Amlani, Principal and Co-Founder of the Retail Strategy Group, said the Canadian dollar may be weakening but it is not tanking . . . yet.
“No matter what happens to the dollar, the cost of doing business will continue to rise. The cost of goods, components/parts, manufacturing and warehousing are only increasing. With looming tariffs and US policy changes, a weaker Canadian dollar will impact the bottom line. Profits and margins will take a hit and at the end of the day, the customer will be the one to pay the higher price. Unless brands and retailers become more strategic in how they source and create products or innovate how they go to market, it will continue to cost more to retail in Canada,” she said.
Gary Newbury, a retail supply chain expert, said it seems consumers and retailers alike can barely catch their breath as a rail strike, a port strike, a potential air strike and finally a postal strike are compressed into a two to three month period, aligning with peak buying. And now a threat on the stability of inbound prices.
“The Loonie has been hovering around 0.72-0.75 for several years, buoyed, in part by the perceived strength of Canadian banking sector, along with energy, agriculture and mineral exports. However, with political instability breaking out (recently), and the release of a significant budgetary deficit, the Canadian dollar to US dollar rate is showing some signs of an impending weakening, dipping below 0.70,” he said.
“The Bank of Canada will be on high alert as its mission is to implement monetary policy to ensure inflation is around 2%. However, this is likely to mean diving into the bonds market and offering higher return rates. This will, in turn, scupper their recent plans to continue to reduce central bank interest rates. Simply put, the interest rate policy of the Bank has done nothing to drive out price rise expectations. They were too late to put up rates in 2022, and too early to bring them down. For consumers this should strike concern as they look towards their 2025 household budgets.
“What this means for retailers? Clearly retailers with a high degree of imports will have been hedging against such risks, so they should have some protection in the short term, and with reduced trading volumes expected during the current peak, their buying will likely reflect a more cautious approach reflecting the need to better manage increased prices and lower consumer sentiment/confidence.
“Short term, they should keep a watching brief for any exchange rate deterioration and place appropriate pauses on buying merchandise in discretionary spending categories. They will also be looking internally for operational efficiencies, typically from the supply chain and overhead departments plus further cutting hours and will be considering consumer price rises/reducing promotional activity. It’s neither a good end to a disrupted year, nor the positive news many retailers will be looking for as they consider Q1, clearance and for some, their fiscal year ends.
“If the exchange rate continues to decline over the next three months, more drastic action will need to be considered by retailers, much as they considered during Q1/2 2020 (with much lower demand than expected and challenges with holding too much inventory with limited ability to liquidate).”
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