Tough times on the border
These are problematic days for Canadia/UN border duty-free, but despite this retailers remain positive and committed to the perpetual renewal of the retail offer. David Davies reports
THE abandonment of the GST Visitor Rebate Program and the protracted implementation of the security-focused Western Hemisphere Travel Initiative (WHTI) are among the issues to have made the last few years among the most challenging ever for the numerous retailers that populate the Canadian/US border.
Indeed, in some sense the most problematic obstacle is still yet to be overcome. June 1 will see the introduction of WHTI for marine points of entry and land border crossings, requiring all travellers to show a valid passport or authorised alternative when journeying to the United States from areas within the Western Hemisphere.
Despite this and other ongoing concerns – including the effect of the wider economic downturn – there continues to be a palpable sense of confidence and exuberance amongst border retailers. Inevitably, the recent annual convention of industry organisation the Frontier Duty Free Association (FDFA) – held in Vancouver in mid-January – did reflect on the panoply of issues presently confronting the industry, but also found time to celebrate retailers’ countless achievements through its celebrated FDFA Gold Standards Awards.
“I think that people are cautious but staying optimistic,” FDFA executive director Laurie Karson tells Frontier. “Everyone recognises that you have to keep marketing and promoting duty-free because we do provide luxury with savings for people, and people still want that. Essentially, the strategy seems to be to remain positive and try to ride out the storm.”
Hello, WHTI
Arguably the most important single challenge currently facing Canada/US border retailers is the Western Hemisphere Travel Initiative. A result of the US Intelligence Reform and Terrorism Prevention Act, the measure is intended to strengthen border security and facilitate entry into the US for legitimate US citizens and foreign visitors.
Not surprisingly in a continent where passport-holding figures remain relatively low, there has been considerable concern about the effect that WHTI is likely to have on travel statistics. Accordingly, several steps have been taken to ease the transition, including the introduction of a raft of more affordable passport alternatives, among them the PASS and NEXUS cards, and an enhanced version of the standard driver’s licence. The US Department of Homeland Security has also passed a waiver for children.
Despite these measures, there are fears that some travellers will be confused by the new arrangements, and may be dissuaded from crossing the border altogether.
Niagara Duty Free general manager Steve Richardson says that the reforms have already impacted upon the retailer. “WHTI has had a major impact on our business over the last few years,” he confirms. “Everything from line-ups at peak times to confusion on required documentation has left a potential traveller/customer questioning their desire to travel across the border. [Moreover] we believe that the next changes in June will result in a significant drop in cross-border travelling as only 38% of New Yorkers and 57% of Ontario residents have passports.”
Despite this, Richardson is hopeful that the industry will finally reach “the bottom of the curve” this summer. “As bad as it will get, growth – albeit on much lower sales – will hopefully become the new terminology in the years to come,” he says.
Laurie Karson echoes this sentiment of hope-through-adversity. “Of course people have their concerns,” she says, “but there has certainly been enough time and communication to the public regarding the deadlines. We are also still pushing for communication and documentation to be in place, and for the resources to be at the border to facilitate the smooth and efficient flow of traffic.”
Goodbye, GST
If the prospect of WHTI was not enough to contend with, border retailers have also had to accommodate significant changes in their overall customer profiles as a result of the Canadian government’s decision to scrap the GST (goods and services tax) & HST (harmonised sales tax) Visitor Rebate Program in favour of the Foreign Convention and Tour Incentive Program.
“It has been a very challenging few years,” admits Len DaSilva, chief operating officer of West Coast Duty Free Store, which is located on the Pacific Highway border crossing in British Columbia, Canada. “We have seen a switch from [being a] US-driven business to Canadian, and now it is switching back again. There has been a decline in total traffic of very low single digits, which is not bad considering the drop in traffic and the economic conditions.”
The reforms have also brought changes for Niagara Duty Free, which is situated at the Rainbow Bridge in Niagara Falls, Canada. “Our customer core has always been heavily weighed on the US traveller,” explains Richardson. “Once the GST Rebate Program was eliminated by the Canadian government, our percentage of sales shifted, with Ontario customers becoming a larger part of the picture – not because of increases, but rather because of decreases in US travellers. We have a healthy international travel base which has helped to keep some consistency in our business.”
The impact of credit card interchange fees has also proven to be a significant issue on the Canadian side of the border. “That was definitely a topic of conversation at the FDFA Convention,” confirms Karson. “Credit card interchange fees to merchants are regulated in Australia and the UK, but not here, and it could mean that as much as two dollars out of every 100 dollars spent goes to card issuers. This could go up to 3% if the merchants are not regulated, so a lot of activity is going on to make sure that this is properly monitored.”
Emphasise the positive
Factor in the prevailing economic conditions, and it is clear that border retailers have their work cut out simply trying to remain positive. However, it would appear that many are doing just that, with Frontier hearing plenty of plans for retail upgrades and refinements.
“In the last year we have ‘gotten back to the basics’,” explains Niagara’s Richardson. “We have expanded our liquor department to better represent this commodity’s percentage of sale. We have revamped our cosmetic and fragrance area to add freshness, and have built a new icewine unit to expand upon the success of this emerging category.”
The store has also renovated its front entrance and implemented a range of shop-wide GWP initiatives. Looking forward, Niagara is planning to ‘open up’ the fragrance and cosmetic department even more and further develop its jewellery sales. “A new humidor, a new crown royal display, and the diversification of our Scotch department are also on the agenda,” reveals Richardson.
Meanwhile, at West Coast Duty Free, DaSilva and his team have been enhancing the liquor selection and boosting the souvenir range in line with the changing customer mix. “It’s all about assortment and offering value pricing to the customer – that’s basically what it boils down to,” believes DaSilva.
The retailer is also hoping to benefit from increased numbers of US-bound travellers resulting from long-term construction work on the adjacent road network. “We are dead centre of two [existing] bridges able to cross the Fraser River and the new bridge will be in the middle, so the excess of traffic will come to our port,” says Da Silva. “In addition, there is more infrastucture on the way to link the road systems, and that should also be beneficial to our port.”
Olympic spirit
Meanwhile, good news is on the way for all border retailers in the form of the next Winter Olympic Games, which are scheduled to take in Vancouver in February/March 2010. A significant increase of travellers heading north is a certainty, and in fact it may be that the uplift associated with the event is already having an impact.
“We are looking forward to BC (British Columbia) having a fairly good year with the Olympics coming up,” says DaSilva. “Lots of people are coming to BC to find out about Vancouver or to scout out places to stay when the Olympics takes place in 2010.”
Next year will also provide another positive focus for all retailers in the north as the Canadian duty-free industry prepares to celebrate its 25th birthday. The historic anniversary will be marked at the next FDFA Convention, which will take place between 14 and 17 November 2010 at the Sheraton on the Falls Hotel in Niagara Falls.
“We are going to invite a lot of dignitaries and put on the best show that we can,” reveals Karson. “We are going to look back at 25 years of the Canadian duty-free industry and will be working closely with supplier members and the convention committee to develop a first-class show. The intention is to make it a wonderful event – a real pinnacle in the life of our industry.”
So while there is no shortage of issues to grapple with over the coming months and years, it appears that the Canada-US border retail business still has plenty of cause for confidence and optimism in the future. Development may be more moderate and restrained than in the past, but development there will be.
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