Canadian Tire shoppers are being shielded for the moment from the full brunt of the sagging loonie.
The iconic retailer said Thursday it’s keeping a lid on price increases on products despite feeling considerable pressure as its own costs rise because of the currency’s sharp downswing over the past 12 months.
The move to hold the line wasn’t framed by company CEO Michael Medline as one designed to cut consumers a break – though it does – but more about putting a “hurt” on other general merchandise giants such as Walmart, Costco, Sears and Loblaw, who may already be passing along increases to consumers.
“We’re doing everything we can to grow market share and hurt our competitors, so we’re trying to avoid taking prices up,” Medline said.
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Similar to consumers, Canadian retailers are facing rising cost pressures as the loonie’s slump against the U.S. dollar deepens. Canadian Tire says it purchases just under half of its products in U.S. dollars, which have become considerably more expensive.
The loonie has plunged from parity with the greenback in late 2012 to just over 76 cents US this week — an unprecedented drop which has only quickened in recent months.
Buying time
The loonie’s decline added tens of millions in costs to Canadian Tire’s own purchasing, McCann said, but the retailer was able to mitigate about half the damage through hedging, i.e., buying contracts for U.S. dollars at a fixed rate that were entered into when the loonie was worth more.
“But hedging only buys you time,” McCann said. Most experts and economists believe the Canadian dollar is going to remain in the mid-70 cent range US well into 2016.
That will outlast any and all hedging abilities of Canadian retailers, experts say, with big chains likely to start passing through costs more aggressively in the months ahead.
“My personal belief is that across all retail in Canada … there could a little bit of inflation we may see,” Medline noted on the call.
Medline added, “We’re doing everything in our power not to pass it on to consumers,” he said.
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