Second Round of Pandemic Lockdowns Could See 225,000 Small Businesses Close in Canada

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Many small businesses and retailers in Canada are far too fragile to survive another round of pandemic lockdowns, says the Canadian Federation of Independent Business.

As cities, provinces, and the federal government move toward new business closures in many parts of the country, the national organization is urging them to provide immediate and full financial support to affected businesses. Earlier CFIB estimates suggest 160,000 small businesses across Canada may permanently close due to COVID-19, with the potential for the number to rise to 225,000.

CFIB Estimates 160,000+ Small Businesses in Canada to Close Due to COVID-19

Dan Kelly
Dan Kelly

Dan Kelly, the CFIB’s President, said that “business owners should not be asked to cover the costs of protecting society through fresh lockdowns of the economy alone. They need full, immediate and ongoing support in any jurisdiction where new restrictions are introduced”.

George Minakakis, a global retail executive with over 25 years of experience and CEO of the Inception Retail Group, said the retailers and small business owners who have enough liquidity to raise capital to see themselves through operationally over the next six to 12 months are the ones that are going to survive.

“That depends on how good their balance sheets look and so much of this is also dependent on what happens with this holiday season. They’ve always counted on this to break even. I shudder to think what it really is going to look like. It’s difficult to say. I don’t think there’s a business out there in the consumer sector that tries to forecast this out more than a month or two months at a time. It’s just difficult to do because it’s such a wild card,” said Minakakis.

“Look at what a difficult time the government is having to try and predict the virus itself. The virus grows and shifts. So does the consumer psyche. And without that level of confidence being there that erodes the ability of these businesses to bounce back. It really comes back to how strong their financials are and whether or not you can weather it out.”

It is the smaller retailers that will face the stiffest challenges.

George Minakakis
George Minakakis

“It’s not impossible. If this was an economic depression, what would you be doing differently to bring traffic in. That’s what I ask everyone,” said Minakakis.

The possibility is there for the consumer to retract even more as governments and media continue to sound the alarm over the second wave of the virus.

“That worries me more than anything,” said Minakakis. “If you don’t have a decent holiday season as a retailer, then I wouldn’t be counting on Boxing Week for anything. The messaging right now from the government and whatever tactics they take I think all of this is affecting the consumer and without consumer confidence what have you got? You don’t have a lot,” said Minakakis.

“And I’m worried that’s going to permeate into the first quarter and in the first quarter we’re probably going to see some other larger businesses that didn’t fare well or haven’t been faring well look for credit protection or even bankruptcy.”

StatsCan Reports 5.2% of Canadian Businesses Considering Bankruptcy

A recent Statistics Canada survey found that 5.2 percent of Canadian businesses reported that they were actively considering bankruptcy or closure.

Over three-quarters (76.9 percent) of businesses had the cash or liquid assets required to operate. Over two-fifths (43.9 percent) of businesses reported that they were unable to take on more debt, while nearly one-fifth (19.4 percent) could not say whether they could take on more debt, said the federal agency.

StatsCan said close to one-third (30.4 percent) of businesses did not know how long they could continue to operate at their current level of revenue and expenditures before considering further staffing actions, closure or bankruptcy, while nearly one-fifth (17.5 percent) reported they could continue for less than six months.

Bruce Winder
Bruce Winder

Bruce Winder, author of RETAIL Before, During & After COVID-19 and President of Bruce Winder Retail, said additional lockdown activity and restrictions will have a fairly negative impact on certain sectors of the retail industry.

“For a lot of them, we’re sort of in the Super Bowl time right now. There’s this fourth quarter. It’s the worst time to have this happen. You’re already going to see this, but now you’re going to see an even greater sense of it, is a move to online shopping,” said Winder. “More and more people are going to look at this and say I probably don’t want to go to a mall or won’t be able to go to a mall or a store potentially so I still need to do gift giving for the holiday and I’m going to try and do as much as I can via online shopping or curbside pickup or something like that.”

For many retailers, this is make or break time.

“A lot of them have been sort of holding on by a thread and they were counting on some good business, enough to pay some bills, generate some cash. Some have bought inventory and they’ve waited to pay suppliers until they get cash in the fourth quarter. Not the big guys. I’m talking more the small and medium guys. This could be make or break for them. This is sort of like their last stand to try to make it work,” said Winder.

“There’s been some lateness in terms of government programs with rent support. Sadly for retailers that’s really been one of the nails in the coffin for retail, especially small and medium sized retailers. The original program, and the failure of the original program that the government put forth, and then in the second wave of it that they’ve updated it . . . it’s been a little late. All this adds up.

“But I think the thing unfortunately that’s going to be the biggest impact is that we’re in the second wave now. If we could have avoided the second wave, some of them might have survived because they’d have some cash in flow. Yes they are going to do business online and that helps. But it’s not enough. It’s not enough to make up for it. For some retailers. There’s some retailers out there who are well capitalized, they’ve been able to negotiate with their landlords, they already had a robust online business before this hit. They’ve got deep pockets and they’re going to get through this. But it’s that small to medium size or fringe retailer. Even the medium size ones. Look at the Reitmans of the world and the Aldo’s. Every week or two we hear about another Canadian retailer going bankrupt. You’re going to see more of those sort of medium size fringe retailers going bankrupt. A lot of them will probably wait until January just because they’re going to try and make a go of it but you’ll probably see a fairly large uptick in bankruptcies in January or worse February when all the bills come due and they realize they don’t have the cash.”

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