Calgary Analysis

No, Calgary is not losing 7,000 businesses a year, despite what you've heard

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Oft-cited numbers in politics and the press based on misinterpretation of city licensing data

A sign advertising a going out of business sale at a furniture story in Calgary. (Submitted)

Quick. How many businesses closed in Calgary during the downturn?

About 7,000 a year? That rings a bell. Or was it 11,000? You might have heard that, too.

Eye-popping numbers like these have been thrown around in politics and the press for the past few years. They've been shared on social media and repeated during election campaigns. A story has emerged that businesses are being shuttered in this city at an extraordinary rate.

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There's only one problem. It's not true.

So how many businesses actually closed in Calgary? We'll get to that in a moment.

But first, we should understand why the inflated figures became so entrenched in our city's narrative.

The crux of the confusion

The numbers originally came from the City of Calgary's business licensing department. They're the people you go to when you want to open a restaurant or a retail store, or even a hair salon in your basement.

They also dutifully provide, when asked by reporters or researchers, a tally of how many new business licences were issued and how many were closed out in a given year.

But to read that as a count of business openings and closures is a misinterpretation of what that data actually means, said Kent Pallister, the city's chief licence inspector.

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The issue is that business licences are non-transferrable. Any time a business changes owners or ownership structure, the city must end one licence and issue a new one. And this is recorded as both a "closure" and an "opening," even though the business hasn't gone anywhere.

So when Sobeys bought out Safeway, for example, Pallister said every one of those grocery stores in Calgary was counted as a closure and then again as a new business licence, due to the change in ownership. So you can see where the problem is.

The Sobeys grocery store chain reached a deal in 2013 to buy more than 200 Safeway stores in Western Canada for $5.8 billion. The change in ownership for each store was recorded in Calgary's business licensing system as a "closure" followed by an "opening" of a new business licence. (CBC)

Pallister believes the majority of the 7,214 licences that were closed in 2016 were the result of changes in ownership. In that same year, probably not by coincidence, the city issued 7,376 new business licences.

Is your head spinning yet? You're not alone.

The licensing data is hard to puzzle out. News articles based on apparent misunderstandings have stood unchallenged and become a part of the public record. The numbers have confused many people — including politicians — even as they've been eager to share them.

Numbers as political tools

The licensing data has been used to paint an especially dire picture of the city's economic situation and, inversely, to portray the economic recovery.

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As a candidate for city council last year, Jeromy Farkas asserted in a Facebook post that "11,000 Calgary businesses closed or moved on in 2016 alone."

He said the same in a tweet. And on his website. And on another part of his website.

When challenged on the figure, he cited as his source a 2016 newspaper article. This article had come up with the number 11,000 by adding the number of business licence closures to the number of businesses that had changed address. Or, as the article put it, "moved."

Farkas' social media posts, meanwhile, used the phrase "moved on," which could create an even more alarming impression.

It's also unclear where the 11,000 number came from in the first place. According to city data provided to CBC News (which we asked them to double-check and re-check again) there were 7,214 licence closures in 2016 and another 1,411 business that moved, which adds up to 8,625.

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On the other side of the coin, we've also seen the business licence numbers employed by politicians trying to spread word of Calgary's economic rebound.

"There's never been a better time to start a small business," Mayor Naheed Nenshi told The Calgary Eyeopener in a year-end interview. "And 8,000 entrepreneurs started small businesses here in 2017."

That number was an approximation from the same city licensing data, which showed 7,332 new licences last year. But, again, many of these are simply the result of changes in ownership and not actually new businesses starting up.

So what are the real numbers?

It depends who you ask.

How many businesses actually closed?

While the raw licensing numbers have been cited in the press and on social media, Calgary Economic Development relies on a different data set to monitor the city's business climate.

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"We take the numbers that are distilled out ... that just show the pure number of actual new businesses opening and numbers of businesses that have closed," said Courtenay Ellingson, the organization's vice-president of research and strategy.

Those numbers, compiled monthly by the city's economic research department, come in a lot lower.

And here they are.

A total of 2,435 businesses turned out the lights in 2016, according to this data set. At the same time, 3,795 new business opened.

That's roughly the same as 2015.

And in 2017, there were 2,108 closures and and 3,286 openings in the first 11 months of the year. (Data for December hasn't been reported yet.)

Licensing data 'far from perfect'

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Scott Crockatt with the Calgary Chamber said the organization keeps a close eye on business licensing numbers but cautioned against looking at the data in isolation.

"It's far from perfect for a number of reasons," he said.

Scott Crockatt with the Calgary Chamber of Commerce says there is opportunity in Calgary's plentiful downtown office space for companies looking to relocate their headquarters. (CBC)

For one, not all businesses are included. The city doesn't license doctor's offices, law firms, accounting practices and other types of commercial enterprises that are licensed by higher levels of government or professional colleges and associations.

The licence numbers also tell you nothing about how many people businesses employ. A big company with 500 people on staff counts the same as that hair salon operating out of someone's basement.

In fact, when a major employer shuts down, the city has often seen a corresponding increase in licences as laid-off workers look to self-employment and start up their own, home-based enterprises.

"Historically speaking, in bad economic times, our licences go up; they don't go down," said Pallister. "So they don't reflect the economy."

One number doesn't tell the whole story

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When it comes to gauging the economic health of the city, both Calgary Economic Development and the Calgary Chamber look at a constellation of data points. They also engage local businesses directly through an annual survey.

Those results showed diminishing confidence during the downturn but the latest edition is trending up.

"Over the last year, the perception of Calgary's economy is slowly improving," Ellingson said. "Business leaders and business owners are feeling slightly more optimistic about the future."

Crockatt said more than a third of respondents plan to hire more people in the upcoming year but he also warned it's "certainly not all roses" for entrepreneurs in Calgary these days.

"They're feeling more optimistic but their business results haven't necessarily improved yet," he said. "So celebration is certainly very premature. But cautious optimism is totally called for."

As for the licensing numbers, Crockatt said they, like any bit of data, should be considered as part of a much larger whole.

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"Relying on any single number for a perception of the economy is, almost by nature, taking it out of context," he said.

These numbers, after all, are used to shape public opinion — and public policy. They have informed past decisions and will guide our future choices. So it's worth making sure we get them right.

Calgary: The Road Ahead is CBC Calgary's special focus on our city as it passes through the crucible of the downturn — the challenges we face and the possible solutions as we explore what kind of Calgary we want to create. Have an idea? Email us at calgarytheroadahead@cbc.ca