The number of "zombie businesses" struggling with unclear prospects is mounting
With a renewed hard lockdown scheduled to come into effect in Ontario on Thursday, the Canadian Federation of Independent Business has warned that the number of failed businesses could run much higher than its initial estimate of 160,000 businesses permanently closed before the pandemic ends.
“I don’t know how many businesses are going to survive, quite frankly,” said Dan Kelly, president and CEO of CFIB. “There are lots of zombie businesses out there right now whose future is just not clear. We think that we’re just at the tip of the iceberg and as the spring rolls on, the debt is going to choke the life out of many of these businesses.”
While acknowledging that the $100 billion in new stimulus spending is a strong start in easing some of these burdens, Kelly stressed that further support from the federal government is needed during this time of uncertainty.
“If we’re going to lock those people down and tell businesses you’ve just got to suffer until this is over, it’s deeply unfair to expect business owners to eat the entire cost of that and sadly… that’s what’s happening,” Kelly told Bloomberg.
Compounding the situation is the flourishing e-commerce market, which has prompted a likely irreversible transformation of the Canadian commercial real estate market.
“Small businesses are increasingly turning to e-commerce platforms, and are using these platforms in innovative ways,” StatsCan said during the first few months of the COVID-19 pandemic last year.
A Colliers International report at the time found that around 10% of retail tenants are contemplating shutting down their businesses. Around 74% said that they are exploring new strategies, with 41% gravitating towards online sales. Another 47% said that space will become a less pressing need due to a greater focus on remote operations.
“We expect the trend around permanent closures to increase given the slow recovery in consumer demand and limitations created by physical distancing,” said Jane Domenico, senior vice president at Colliers Canada. “COVID-19 is forcing retailers to do business differently.”
