Thank you, Mr. Chairman. Merci, monsieur le président.
We will be addressing or touching on three areas. One is investing in our people, the second is investing in new technology, and the third is removing barriers.
As mentioned, I am the president and CEO of the Retail Council of Canada, Conseil canadien du commerce de détail. We speak for an industry that is vital to the daily lives of all Canadians. There are more than 227,000 retail locations across our country, directly employing over 2.1 million Canadians. At the end of 2006, retailers generated more than $350 billion in sales.
As impressive as those numbers are, they understate the importance of the retail trade to the Canadian economy. The role of retailing in the economy has changed dramatically in recent years. Retailers are no longer the channel through which manufacturers and suppliers push products to final consumers. As a result of their superior knowledge of customer needs, retailers have become buying agents for the Canadian public.
This change in role has had two major effects. Retailers use the power of their customers' demands to drive other major parts of the economy. Their understanding of consumer needs and wants directs the production and importation of most consumer products and establishes the prices consumers are prepared to pay for those products. This, in turn, defines the cost parameters within which retailers and their suppliers must operate.
You can see this playing out in relation to the increase in the value of the Canadian dollar. If the product offerings of Canadian retailers do not meet the expectations of their customers, as we have all seen, Canadians quickly vote with their feet and their dollars.
Retailers have been responding to the pressure of the high dollar for some time, going back to suppliers and saying, please explain your pricing policies, please explain country pricing, please justify the price discrepancy, and if you cannot do so, we expect you to reduce that gap significantly, immediately.
Our members will keep the pressure on suppliers, but the reality is that currency parity does not mean price parity. There are a large number of factors that can create differences in the final retail prices between jurisdictions, and many of these tend to push prices higher in Canada. Some reflect fundamental structural differences between the two countries, some reflect policy differences, and some reflect competitive factors.
For example, the Canadian market is one-tenth of the size of the U.S. market, which presents scale issues. Labour costs are higher. The U.S. federal minimum wage recently rose in the U.S., as I mentioned, to $5.15 per hour. Transportation logistics costs are higher because of our smaller population and the long distances between major urban centres. Unique labelling requirements, including nutritional, bilingual, and metric, add cost and prevent retailers from sourcing directly from the U.S.
Some of these costs represent a premium we all pay for the many benefits that come with being Canadian. Our members, like all Canadians, value these benefits highly, and we accept and support this premium.
Still, there are things that can be improved to offset or reduce these costs and improve the competitiveness of the retail sector. We are grateful for the steps the federal government has taken to reduce corporate taxation. These measures are a meaningful step in assisting retailers to reinvest in their companies and their people. There are some additional measures that would provide targeted incentives for retailers to make some key investments.
RCC has called for government support for the investments that retailers make in their people and innovative technologies and business practices. We also need government action to remove some of the barriers to the efficient movement of goods within the Canadian supply chain.
Allow me a moment to speak about investing in our people. The RCC has supported the work of the federal government, in partnership with provinces, to improve the supply of labour through changes to immigration policy, new action on temporary workers, and the recent panel appointed by Minister Solberg to work on how to keep mature workers longer in the workforce. As well as increasing the pool of workers, retailers are anxious to retain the employees they have and to improve their skills.
One of the biggest challenges the retail industry is facing today is the cost of training a labour force that is constantly changing. Annual turnover rates are slightly over 30% in the retail sector, compared to a labour force average of slightly over 20%. Some members are now experiencing turnover rates as high as 60% in some regions of Alberta. The constant need for internal training puts a strain on retailers and affects the quality of service that retailers can offer to their customers.
Retailers are doing what they can to improve their retention rates, but it will always be a challenge. Retailers have been able to increase average pay rates faster than the industrial average in recent years, we're pleased to say. Retail hourly wages have risen from a low point of 76% of the industrial average in 1999 to over 88% in 2006, the most recent year for which we have information. The average hourly wage has risen from $12.18 in 1999 to over $15.18 in 2006.
Our members would like to pay their employees more, but the vigorous competition in the trade, driven by value-conscious consumers, makes it very difficult to do so, as we have seen in recent months. Employment is one of the very few costs that a retailer can manage, so these costs bear a heavy burden on the need to be competitive. Retailers deeply respect the smart, informed Canadian consumer, but this consumer also makes it extremely difficult for a retailer to raise its wages above the competitive norm.
One way to boost productivity and retention and improve wages is to invest more in our people. Retail is the place where many Canadians start their working careers, so retailers are accustomed to doing a lot of formal and informal training. Some of this is job and employer specific, but retailers also build a lot of portable skills in their people. The government currently recognizes company investments in upgrading its human resources by permitting the write-off of expenditures on third-party training and education paid for by the company. However, retailers also do extensive in-house training.
RCC would recommend that the government provide tax support for these expenditures similar to that provided for out-of-house training costs. RCC recognizes that there are challenges in defining what in-house expenditures would be eligible. However, Quebec is one jurisdiction that includes some forms of in-house training in its training tax credit scheme, proving that it is possible to identify and support certain defined forms of in-house training. RCC would recommend that the federal government consider providing tax support for these types of training costs.
As regards investment in technologies, information and communication technologies are driving major improvements in retail productivity and dramatic changes in business practices. Working from a small market base, retailers operating in Canada are struggling to keep up with rapid international developments. Obviously the sector could use some help.
The next major wave of change in retailing will be the implementation of radio frequency identification technology in the supply chain, which is RFID. This technology will lower costs and improve the quality of service offered to the customer. However, at this point, the use of RFID in Canadian retailing, and indeed in manufacturing, remains extremely low, largely because it's costly to implement. In order to stimulate investment in these technologies, RCC has recommended some faster rates of depreciation for key investments. The measures we suggest are similar to those used when the GST was introduced, so we know they are doable and we know they work.
In terms of removing barriers, I'm sensitive to time, but perhaps you could allow me to talk about duties, because there was a lot of misunderstanding in the public, and I think also with the members of this committee and Parliament, about how retailers price their goods. While we know many of the prices have been reduced, sometimes at the cost of margins, we also need to understand that this committee, as well as the government, has a role to play, and it's specifically in import duties.
Duties are the perfect example of a barrier, and the perfect example of not having a level playing field with our American competitors. One of the reasons that many consumer goods are more expensive in Canada compared to the U.S. is obviously the higher level of duty levied on imports. We recognize that some duties protect Canadian jobs and protect Canadian manufacturers, but some are pointless. For example, Canada does not manufacture any substantial amount of single in-line skates, but the duty on these products is 18% compared with a rate of 0% when these goods enter the U.S., meaning that a retailer importing these products into Quebec, Ontario, Alberta, B.C.—regardless—would import them at an 18% duty versus his or her competitor in the United States. This is a cost differential no retailer can surmount; no retailer can in fact eat within its profit margin with that duty.
I would add that Canada's rules on the movement of international marine containers, called cabotage regulations, need to be reviewed. Let me just wrap this up and say that our cabotage regulations currently do not reflect the needs of the modern supply chain.
Let me explain. When we're talking about marine containers, we're talking about those 40-foot boxes we see on boats, trains, and trucks, and at the locations of many businesses across the country. Cabotage regulations in Canada do not permit these boxes, so to speak, to enter the country for more than 30 days. They have to come through one port and they have to go out through the same port. The United States allows these containers to come into its ports and to stay within the country for over 300 days and to exit the country through another port, meaning that all of the companies using those containers are saving a substantial amount of money.
I wish I could conclude, and I apologize for not doing so, but hopefully I will have a moment when there's a question.
