So whatever happened to the so-called retail apocalypse that so many people expected to take place as a result of the devastating economic impact from the COVID-19 pandemic?
Despite a tumultuous time in the past nearly two years, and upheaval everywhere, caused by lockdowns, closures and strict public health measures, many retailers have weathered the storm and the number of bankruptcies across the country is nowhere near what some experts had forecast.
However, is there a day of reckoning coming when government support programs inevitably come to an end? And perhaps the overall statistics also don’t account for many of the smaller businesses who simply shut their doors and didn’t file officially for creditors’ protection or bankruptcy.
“The predicted 2021 retail apocalypse never happened, however, there were obvious winners and losers on the Canadian retailing scene,” said Michael Kehoe, a Calgary-based commercial real estate broker with Fairfield Commercial Real Estate and a spokesman for Consumer Real Estate Canada. “Home fashion, furniture and junior women’s apparel excelled while other categories weren’t so fortunate as they were confronted with staffing and supply chain issues amongst other challenges.
“We witnessed a definite thinning of the pack as a number of retail chains entered court protection, consolidating locations or folded all together.
Many retailers avoided bankruptcy with the temporary cooperation of their suppliers, lenders and / or landlords. By kicking the proverbial can down the road, future survival or success is not assured as many landlords are playing it tough on lease renewals or extension of rent reductions often taking spaces back to be recycled with new tenancies.
“2022 will be a pivotal year as many new retail ventures emerge and new retailers enter the Canadian market. Retail is always evolving and changing especially in this unprecedented time of disruption and opportunity.”
According to the most recent report in November from the Office of the Superintendent of Bankruptcy Canada, business insolvencies for the 12‑month period ending November 30, 2021, decreased by 15.4 per cent compared with the 12‑month period ending November 30, 2020. The two sectors that registered the biggest decrease in the number of insolvencies were retail trade and accommodation and food services. Finance and insurance; and administrative and support, waste management and remediation services experienced the biggest increase in insolvencies, said the report.
The retail sector experienced 196 bankruptcies in 2021 until the end of November, which was down 29 per cent from the 276 for the same period the year before. The number of proposals, which is an offer to creditors to settle debts in a formal agreement under the Bankruptcy and Insolvency Act, fell by 53.4 per cent to 54 compared to 116 the previous year.
“Additionally lenders have been holding off from calling in non-performing loans. As such, companies have not yet needed to resort to filing for creditor protection or declaring bankruptcy,” he said.
“We just did a survey in which the overwhelming majority of insolvency professionals are predicting more insolvency filings this year. The government subsidies are ending and lenders are starting to take action, though it will likely take a few quarters to see an increase in filings. What also does not get reflected in the statistics is the number of small businesses that just informally close and never reopen. If I had to guess, this is a very big number in Canada.”
George Minakakis, principal of Inception Retail Group Inc. and author of The New Bricks & Mortar – Future Proofing Retail, said the human retail story is that the future only rewards the bold.
“When 2020 arrived many of us were expecting more store closures. A spill of 2019, if you will. By March 2020, there was a stay of execution on that fallout. Because of the abrupt impact of the pandemic, the government was introducing subsidies through loans. However, let’s be realistic. We had a spillover in 2020 with bankruptcies and restructures. The timing was right to expose vulnerable and weak businesses large and small,” he said.
“Like Le Chateau which filed for bankruptcy and ultimately was acquired to relive as an online business. And Reitmans, which recently emerged from its restructuring. I believe these are the lucky ones. There are a plethora of small retailers that have not been so lucky and have closed their doors silently. Meaning they could not afford bankruptcy or a restructure. And some mid-large retailers may have had some sort of business transformation into the digital world. We have no evidence that this was enough to keep them competitive.”
The challenges for many retailers are not over. Current events, inflation, supply chains, higher interest rates, and more of the virus lead to a potential consumer slow down.
“The equity markets are reacting to that right now, in the technology sector primarily. In other words, the gold rush with existing businesses who could pursue digital transformations is predominantly complete,” said Minakakis. “All retailers face these challenges and whoever was on edge at the beginning of 2020 needs to start repaying government loans and competing without a safety net.
“Now we enter a stage for retailers to prove they are competitively sound and positioned to survive. Over the next three to four months, a tough but true story will begin to surface from the shadows of government subsidies into the real economy. The strategic choices of retailers will allow them to fly and be first in the market, or fade.”
Bruce Winder, author of RETAIL Before, During & After COVID-19 and president of Bruce Winder Retail, said several retailers, specifically small to medium sized retailers, are surviving from government loans and in some cases grants.
“These programs are literally keeping them solvent. Others have been able to reduce operating costs to survive on a lower revenue base. Finally, some have pivoted to e-commerce to offset in-person sales and have used marketplaces to increase virtual footfall,” said Winder.
“Once Omicron fades and hopefully the pandemic becomes an endemic, retailers will need to adjust to a new normal while paying back significant debt in many cases. Sadly, I think we will see more retailers leave the industry at that time when subsidies are eliminated. Of course the silver lining is that new retailers will emerge from the ashes.”