Struggling Retail Giants: The Case of Zombie Firms in Canada and Beyond
"'Zombie Businesses': Hudson's Bay and Other Canadian Companies Causing Significant Economic Drag"
In the unpredictable world of business, some companies find themselves caught in a limbo – a state often referred to as being a "zombie firm." Meet Hudson's Bay Company, one such firm that sadly met its end, joining the ranks of Canada's struggling retail titans.
According to Tom Goldsmith, the founder and principal of Orbit Policy, the Bay, along with many other retail establishments, failed to respond innovatively to competition, leading to its eventual downfall. He refers to these businesses as "mature firms that persist and are a severe drag to our economy."
So, what exactly is a "zombie firm?" The term was first coined in the 90s in Japan and involves referring to underperforming businesses kept alive by government and bank loans. StatCan, Canada's federal statistical agency, underlines this definition in its 2023 report, stating that zombie firms pose a detrimental impact on national productivity, suppress wages, and hinder the growth of healthy firms. Scary numbers reveal that between 5-7% of all Canadian businesses are zombie ones, possibly making Canada a world leader in this disturbing trend.
The same report confirms that the share of zombie firms among publicly traded companies has steadily increased despite a decline in the overall zombie firm share since 2011. Industries such as mining, oil, and gas extraction remain the most vulnerable to zombie status.
But how can businesses avoid a similar fate as the market evolves? Goldsmith attributes the survival of establishments like Simons, amid a wave of new business models, to excellent business leadership, strategic decision-making, and prioritizing innovation.
When it comes to AI adoption, only 25% of firms are getting a return on their investment, Goldsmith says, depending on the quality of their strategy for utilizing new technologies. Companies need a virtual presence, digital marketing strategies, and e-commerce platforms to attract consumers in today's digital age. Unfortunately, many companies fall into the zombie category when overburdened with debt resulting from privatization or strategic mismanagement.
Could AI adoption become an impending issue? Goldsmith suggests it's more about the workforce and the talent hired by the company than the technology itself. AI, like any tool, needs a collaborative approach between management and workers to maximize its potential. The key lies in addressing top-down strategies, involving employees in the forecasting and decision-making process, and fostering an environment that adapts to the rapidly changing technological landscape to prevent businesses from becoming zombies.
- Zombie firms, a term coined in the 90s, refer to underperforming businesses sustained in Canada and beyond through government and bank loans, posing detrimental impacts on national productivity, suppressing wages, and hindering the growth of healthy firms, as highlighted in StatCan's 2023 report.
- The mining, oil, and gas extraction industries are most vulnerable to becoming zombie firms, according to the same report, which confirms that the share of zombie firms among publicly traded companies has increased, despite a decline in the overall zombie firm share since 2011.
- To avoid a similar fate in today's evolving market, businesses need excellent leadership, strategic decision-making, prioritization of innovation, and the adoption of virtual presence, digital marketing strategies, and e-commerce platforms, as exhibited by Simons amidst new business models.
- AI adoption could become an impending issue, even though only 25% of firms are currently seeing a return on their investment, according to Tom Goldsmith. The key to maximizing AI's potential lies in a collaborative approach between management and workers, addressing top-down strategies, involving employees in forecasting and decision-making processes, and fostering an adaptive environment for technological changes, to prevent businesses from becoming zombie entities.
