STEPHEN SWOFFORD / NNY BUSINESS
Gary DeYoung, executive director of the Thousand Islands International Tourism Council, stands in front of the Thousand Islands Bridge.
Despite exchange rate IMbalance between U.S. and Canadian dollar businesses maintain vision towards continued economic partnership
Some of Tom Cheney’s best customers at his tire store in Watertown are Canadians, drawn by lower prices on this side of the border. But a weak Canadian dollar has Cheney Tire looking closer to home for the coming year’s sales.
The Canadian dollar tumbled against the U.S. dollar in 2016, and analysts say they don’t expect much of a recovery this year as Canadian and U.S. economic policies favor a similar gap. Hotels and restaurants are bracing for a long stretch of diminished business, as are sellers of items such as tires that aren’t geared to tourism but are part of the cross-border economy all the same.
“It’s remarkable. All summer long, it’s been the same way,” said Cheney, president of Cheney Tire, on State Street in Watertown, whose business from north of the border was robust when the two countries’ currency was close in value. “I have a lot of customers and a lot of friends in Canada,” he said, but some have called to say they won’t be buying again soon.
The Canadian dollar has been trading at an average of around 71 cents for the past year. That’s well below the currency spread of five percent or 10 percent that Cheney said can cut into his business. The Canadian dollar was last at par with the U.S. dollar in 2012 and has sunk each year since.
“A plunge in the value of the Canadian dollar has shifted the economics of Canada-U.S. travel and purchasing power significantly,” said TD Bank in an analysis in the early part of 2016. “Facing a 35-40% higher price tag based on simple currency adjustment alone has led to a considerable pullback in the number of Canadians heading south, especially on a short-term basis.”
Tires are among a handful of items that Canadians have seemed to be able to buy for less in the U.S., and which may not be so attractive now, said Gary DeYoung, executive director of the 1000 Islands Tourism Council, a promotional agency that looks for ways to draw Canadian and other business to the region along the St. Lawrence River.
“There are certain things that are just a better deal in the U.S.,” DeYoung said. “Tires are a big deal for Canadians to buy.”
So are shoes, cheese and other dairy goods, DeYoung said. But Canadians’ diminished purchasing power makes all of these items less of a bargain, and it inevitably leads to fewer purchases of items such customers would buy coincidentally on a visit — if they even make the trip.
“If you can’t shop, it’s one less reason to show up in the first place,” DeYoung said.
Cross-border traffic bears out DeYoung’s concern. Fewer Canadians are visiting Northern New York than two years ago, for both extended stays and for trips of just a day or two, according to government tallies. The number of Canadians returning to Canada by car in the St. Lawrence region fell by 21 percent from 2014 to 2015, and by 26 percent in the January-May period of 2016, compared to two years earlier.
The number of Canadians returning to Canada by car after staying one night in the U.S. fell by 45 percent from 2014 to 2015, and by more than half — 52 percent — in the January-May period of 2016 compared to 2014.
Length of stay has a financial impact on consumers, as well, because Canadian customs rules allow citizens there to bring back a higher value of goods if they stay in the U.S. for 48 hours, for instance, than if they make a day trip, to avoid certain customs duties. That’s the reason, DeYoung said, that a Canadian shopper in front of him at Sam’s Club once asked the clerk to hold onto two of the four tires he was buying, so he could come back another time and return home to avoid the customs fee.
Staying longer is one way to make cross-border shopping more economical, reported the Web site crossbordershopping.ca., which gives Canadians tips on buying goods in the United States. The Web site recently published a list of tips for cost-effective shopping, adding that the potential to find deals in the U.S. is still a “resounding yes” with some planning, even with an unfavorable exchange rate.
Other tips included avoiding ATM machines, favoring credit cards that don’t charge foreign transaction fees, buying gas in the U.S. — where it’s as much as 25 percent cheaper — and ordering goods online from U.S. retailers and having them shipped to U.S. addresses near the border that provide such services. That avoids the cost of shipping into Canada, according to the Web site.
When traffic from Canada wanes, Upstate New York especially sees the impact. The state typically accounts for about a quarter of all Canadian car trips into the U.S., the federal government reported.
If sales to Canadians drop off enough, county governments lose sales tax revenue, DeYoung said. That, in turn, affects local governments; Jefferson and St. Lawrence counties pass along more than 45 percent of county sales tax revenue to local governments, one of the higher sharing rates in New York, the state comptroller’s office reported.
Sales tax collections in Jefferson County outpace the rest of Upstate New York on a per capita basis, according to figures DeYoung keeps and tracks. That’s a bright spot in the economy that shows the strength of tourism. It also reveals a vulnerability when shopping becomes less affordable for Canadians. Retail store sales account for about 30 percent of all taxable sales in the county, he said.
Jefferson County’s retail sales fell by 6 percent, or $35 million, between 2013 and 2015, said DeYoung, who blames at least part of the decline on the weakened Canadian dollar.
If sales tax collections in the region dwindle, that would reverse a trend that had the north country increasing its sales tax collections faster than other regions. New York City and the north country saw collections increase at an average of 4.8 percent from 2003 to 2014, for instance, greater than the average of 3.6 statewide, the comptroller’s office said.
Exchange rates play into tax collections either positively or negatively, the Comptroller’s Office reported. In 2008, the comptroller’s office said in its annual report on sales taxes that some counties along the northern border were benefitting enough from a strong Canadian dollar at that time to cushion the effects of the broader economic downturn.
A weak Canadian dollar can dampen efforts to attract Canadians to north country museums, which may not be destinations so much as stopping points on broader trips. The Frederic Remington Art Museum in Ogdensburg only takes about an hour to see but attracts Canadians interested in the artist’s works, said the museum’s director and curator, Laura Foster.
That business has tailed off, Foster said, although the museum advertises to Canadians and sees great potential in the market to the north.
“We try very hard, in a financially conservative way, to attract Canadians to visit the museum because they’re an underserved audience, and there are so many of them,” Foster said.
Poor exchange rates can cut into the museum financially, Foster said. A Canadian supporter generously donated $25,000 to the museum in 2016 — but that came out to $18,500 in U.S. dollars when deposited at the bank. And since Canadians don’t receive a tax credit for donations to U.S. charities, those gifts are especially precious, she said.
The museum keeps trying. Foster said a partnership with the Brockville Arts Centre in Ontario lets visitors there learn a bit about Remington and the U.S. museum, and the Ogdensburg Bridge and Port Authority let the museum put up displays for free at the Ogdensburg Airport, recently expanded to accommodate direct flights to Florida — an effort targeted at Canadians looking for a cheaper route south.
Canadian travel to Florida in the winter — the so-called snowbird effect — doesn’t appear to be hurt by the exchange rate, according to the TD analysis. Nor does the overall picture for other longer-term Canadian visits, even as day trips and other short excursions suffer.
With more favorable exchange rates and the right mix of promotion, Foster said, Canadians “can be convinced to go across the bridge and past Price Chopper” to visit the museum.
The future of the exchange rate in the next year or more will depend in part on the policies of the incoming Trump administration. Although Trump has sent mixed signals, his campaign promises and the approach of congressional Republicans tilt toward a stronger U.S. dollar, reported FXCM Market Insights.
The dollar has strengthened at the beginning of past Republican administrations, the analysts said. But the Republican party platform calls for a stable currency and proposes creation of a committee to investigate ways to set a “fixed value” for the U.S. currency.
For his part, the FXCM analysts said, Trump has spoken favorably of a weaker dollar, which would benefit U.S. exports and — depending on Canadian policies as well — possibly attract more shoppers south. But he and congressional Republicans also say they want to reduce the U.S. federal debt and allow interest rates to climb again from near-zero levels, and that favors a stronger U.S. dollar, the analysts said.
Trump has also called for revisiting U.S. trade agreements and seeking to reduce the U.S. trade deficit, would would tend to favor a stronger U.S. dollar, according to the analysis.
Pushing in the other direction is the sluggish pace of economic recovery, analysts said.
“This suggests that any change in monetary policy would have to be carried out in a gradual manner and that any corresponding strengthening would also be gradual,” the report said.
The analysis by TD Bank predicted further drop-offs in Canadian visits and spending in the United States, although the bank didn’t predict a deeper slide in the Canadian dollar. In fact, as crude oil prices climb, the Canadian dollar could lift a bit, the bank said.
Internet shopping may play into to the picture as well, but detailed market information on cross-border Canadian e-commerce is hard to come by, TD said. Web sites advising Canadians on shopping in the U.S. tout the United States’s greater variety of goods, lower prices and better service, and TD said the longer-term upside to e-commerce is impressive.
However, TD said, online sales probably are affected similarly by poor exchange rates, so those sales could decline, giving Canadian Web sites a chance to gain market share.
Business in the opposite direction is beginning to benefit, TD said, as Americans are slowly drawn back into Canada. While U.S. travelers will spend their stronger dollars on trips domestically and on trips to Europe and other destinations, travel to Canada should recover from an all-time low in U.S. visits in 2014, the bank said.
In the north country, businesses that take Canadian money at face value hope to counteract the effect of the exchange rate — if Canadians will travel to the U.S. in the first place. The Greater Watertown-North Country Chamber of Commerce lists 14 of its members that take Canadian money at par, though several accept only cash and require identification.
Businesses taking Canadian money at par include the Best Western hotel in Watertown, the Ontario Place Hotel in Sackets Harbor and Bonnie Castle Resort in Alexandria Bay. The Dry Hill Ski Area in Watertown does as well, calculating that the summer tourist season isn’t the only time Canadians will visit Northern New York.
Another business set to go that route is the 1000 Islands Harbor Hotel in Clayton, which opened two years ago amid hopes it could attract Canadian visitors. Canadian guests are still a “very small” part of the upscale hotels’ clients, although the vast majority of people who come by boat to the hotel’s restaurant in warmer weather are Canadian, said the general manager, Todd Buchko. The hotel is operated by Hart Hotels.
“We were thinking it’d be a very big part of our business,” Buchko said.
Now, Buchko said, the hotel will begin taking Canadian cash at par. Modeling other businesses in the region, the hotel won’t treat credit cards in that fashion, he said, as bank fees would make that a more complicated endeavor.
Buchko said he’s not worried about losing money on Canadian currency, since he’s looking to generate business in the slow winter season on the St. Lawrence River and eventually convince businesses downtown to expand winter hours — an outcome similar to what happened when a sister hotel opened in Watkins Glen. “Our goal is we really just want to get people here to the hotel.”