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Canada and the United States are gearing up for their biggest battle in these parts since the War of 1812.

A duel is brewing on each side of the border as the Fashion Outlets of Niagara Falls prepares a $71 million expansion to compete with a behemoth outlet mall being built at Niagara-on-the-Lake in Ontario.

Both malls will go head to head next year, trying to capture the millions of dollars spent in the region by tourists and Canadian shoppers annually.

Retailers in the Fashion Outlets of Niagara Falls rely on cross-border shoppers for 82 percent of their business.

“They’re why I’m here,” said Vincent Pagano, who has owned the Rainbow Airbrush kiosk at Fashion Outlets of Niagara Falls for 24 years. “Years ago when the value of the Canadian dollar dropped, this place was a ghost town.”

The Canadian dollar - or 'loonie' - has been hovering near par with the U.S. greenback for four years, which has given Canadian shoppers more buying power on shopping trips across the border.

The Fashion Outlets’ expansion will add 235,000 square feet and 50 stores to its footprint, including two department stores, and already has tenants lined up for the majority of the space. There will be more parking, a new common area and more room for the packed tour buses that regularly make pilgrimages to the mall.

Another $13 million in tenant improvements is slated for the existing mall.

Previous owner AWE Talisman, which bought the mall out of bankruptcy for $62 million in 2005, poured millions into renovations and drew scores of top-notch designer retailers to the mall, such as Kate Spade and Michael Kors, before selling to California-based Macerich for $200 million in 2011.

The company has said the expansion is needed to help it compete with the Outlet Collection at Niagara, a 720,000-square-foot mall being built by Quebec’s Ivanhoe Cambridge on Glendale Avenue near the White Oaks resort just off the Queen Elizabeth Way.

The mall will have many of the same stores that Fashion Outlets has – Calvin Klein, Brooks Brothers, Tommy Hilfiger – and some that it doesn’t, such as Forever 21 and anchor tenant Bass Pro.

The Collection will address a main complaint Canadian shoppers have about shopping domestically – a lack of selection and access to designer names.

Price wars

Even with lower outlet pricing, however, the Collection will have a hard time matching U.S. bargains. Canada’s smaller population and higher wage costs, along with the expense of transporting goods throughout Canadian networks put it at a disadvantage.

Take into account the near parity of the Canadian dollar and the fact that Ontario’s tax rate is 13 percent compared to Niagara County’s 8 percent tax rate, and there’s almost no contest on price.

But David Baffa, senior vice president of retail development for Ivanhoe Cambridge said the nature and quality of retailers at the Collection, along with its open-air setting, will set it apart.

Skipping the hassle of customs and toll booths is another huge bonus for Canadians shopping at the Collection.

“Our concept provides an additional opportunity for Canadian consumers to enjoy retail offerings here in Canada without adding the extra expense and inconvenience that comes with having to cross-border shop,” Baffa said.

As much as Canadian dollars spent here are a boon for Buffalo Niagara, their loss has had an equal but opposite impact on the other side of the border.

Canadian spending helped boost Erie County sales tax collections to a record high of more than $410 million last year. The Fashion Outlets is Niagara County’s largest payer of sales tax. The county’s sales tax receipts have increased from $77.6 million in 2006, when AWE Talisman began working to lift the mall out of disrepair, to $93.3 million last year.

Shoppers from Ontario spent nearly $1 billion in Buffalo Niagara in 2011, according to research by Longwoods International. About 1.2 million of the Canadians who crossed the border to shop that year stayed overnight, spending $88 million on lodging. A new Hampton Inn being built on Niagara Falls Boulevard near Interstate 190 is the latest hotel to spring up near the Fashion Outlets, while several new restaurants have opened near the mall to capitalize on the $174 million Canadians spent dining out in the region.

But the U.S.’s gain has certainly been Canada’s loss. Retailers are losing millions, sales tax revenue is suffering and youth unemployment is at 15.9 percent in the Niagara region.

Booming population growth in Toronto means the region doesn’t see a blip when its consumers head below the border for a shopping spree. But Niagara doesn’t have that luxury.

“The retail market in Niagara Ontario is saturated with new shopping choices being added in an area whose population is not growing,” said Rick Woodward, marketing director for Pen Centre, a more than one million-square-foot mall in St. Catharines, Ont. “It’ll make all retailers have to be more creative and innovative to attract customers.”

The Pen Centre recently invested $13 million in upgrades at the mall and launched a successful Black Friday event, even though Canada does not celebrate the American Thanksgiving that kicks off Black Friday shopping here.

Retailers have also experimented with things like Frugal Fridays sales and tax-free days and have stepped up customer service.

Fewer trips

In April, the Greater Niagara Chamber of Commerce Retail Council launched a campaign to encourage Canadians to shop on their home turf more often.

The initiative urges Canadians to make “1 Less Trip” across the border per year, and spend that money – an average of $72 – at Canadian retailers instead. Doing so would translate to a $126 million impact in the community, organizers said.

“It’s not about stopping people from crossing the border to shop, it’s about balancing it out,” said Sendzik, CEO of the Greater Niagara Chamber of Commerce in Ontario. “It’s about sharing the wealth.”

While Sendzik uses characteristic Canadian politeness to soften any mention of outlet wars, on the U.S. side Town of Niagara Supervisor Richards is a little more blunt.

“I don’t see it as real competition,” Richards said. “I’d think those bridges would be a bigger detriment than any mall at Niagara-On-The-Lake, but Canadians love coming to the United States.”

He also points to the open-air concept of the Collection as a possible deterrent in the cold weather.

But in the end, it’s Canadian shoppers who will determine the winner of the outlet mall wars.

People like Trina Johnson, who makes the 90-minute drive from Toronto to Buffalo Niagara every two to three months to stock up on everything from clothes and makeup to cereal and bottled water.

Johnson said she’ll definitely give the Outlet Collection at Niagara a chance.

“I’ll probably stop to check it out on my way to New York,” Johnson said.

email: schristmann@buffnews.com