Since the coronavirus pandemic began to take shape in the United States earlier this year, its impact has sent shockwaves through the economy, and small businesses have taken a particularly hard hit. On March 13th, the President declared a national state of emergency, and by the end of March, 94% of the U.S. population was under stay-at-home orders. This induced a radical and rapid shift in both supply and consumer demand across a broad range of industries.
The combination of stay-at-home orders, business shutdowns, school closures, and wide-ranging new regulations implemented by state and local governments to slow the spread of the coronavirus continues to have a sweeping impact on social and economic life. Many small businesses, operating on thin profit margins, have struggled to stay afloat, while a few have managed to pivot their business to suit customers’ changing needs and reduced finances.
Financial strains are a reality for many small businesses, exacerbated during COVID-19 Pandemic
From a survey of 5,800 small and medium-sized businesses (SMBs) conducted in early April, the median small business had only enough cash on hand to cover expenses for two weeks. Three-quarters of respondents with monthly expenses greater than $10,000 had enough to last just two months. As the pandemic continues, many businesses are relying on loans and government aid to float expenses until they can profitably reopen.
According to the most recent Small Business Pulse Survey, undertaken by the US Census Bureau throughout the months of May and June, 82.7% of SMBs surveyed said they had experienced a negative impact because of Covid-19.
Small businesses now make up less than half of the U.S. economy (44%), yet small businesses seem to be bearing a larger share of the economic fallout from Covid-19. In May, it was estimated that 2% of all small businesses and 3% of restaurants had closed permanently. The ultimate impact of Covid-19 on Main Street America remains to be seen, but small businesses will need to evolve quickly and wisely to survive.
Essential small businesses are struggling, too
When shutdowns began in March, grocery stores, takeout food service, hospitals, pharmacies, gas stations, plumbing and electrical services, and liquor stores were generally considered essential, and most have stayed open.
While essential small business owners largely felt fortunate to be able to keep their doors open, they also faced new challenges. These businesses had to quickly adapt to a new business environment, dealing with broken supply chains, implementing new cleaning protocols, providing personal protective equipment (PPE), and enforcing distancing measures. Some lost employees who were scared to come to work, and many essential businesses still experienced a drop in sales.
As more information about the risk and spread of the virus became available, regulations from the CDC, state and local governments have evolved, and essential businesses have had to further adapt, often at significant cost.
Rollercoaster of reopening
As states and local economies started relaxing stay-at-home orders and permitting non-essential businesses to reopen, coronavirus cases began to rise.
Measures in several regions were re-implemented (Georgia, Texas, Florida, amongst others), forcing customer-facing businesses to shutter their doors once again. For many, this caused further losses for already cash-strapped businesses and, understandably, some owners have been hesitant to invest in restarting operations only to risk another shutdown.
According to Yelp’s most recent Economic Averages Report, of the businesses that have listed themselves as temporarily closed since March 2020, 55% (72,842 businesses) have now closed their doors permanently.
Consumers have new priorities
Consumers are cutting back or changing spending patterns by staying home rather than going out to eat, ordering gifts and clothing online, and generally spending less on recreation and non-essential purchases.
According to a recent international study by McKinsey & Company, more than 75% of consumers in the United States have changed their shopping behaviour during the pandemic, and upwards of 60% of those consumers plan to continue with their new behaviour even as restrictions are lifted.
For business owners, this presents new hurdles. Facebook’s State of Small Business Report shows that 20% of small business owners said their biggest challenge during the crisis would be lack of demand.
Of survey respondents in the U.S., 21% said that the most important factor for them when deciding on a product is now healthy and hygienic packaging, and 26% said the most important factor is how well companies take care of their employees. In some ways, this can be a boon for small businesses, as people are focusing on local, sustainable purchases that fit their new spending patterns.
Rebuilding, reinventing and reopening safely
According to the U.S. Chamber of Commerce, an increasing number of small business owners believe that economic recovery will be prolonged. As of the end of June, 55% of owners surveyed believed it would take six months to a year for the business climate to return to normal, up from 50% in May and 46% in April.
Since it seems that Covid-19 will not be disappearing any time soon, businesses, especially customer-facing ones, are adapting and integrating protocols and best practices into their systems to mitigate risks and protect the health of their customers and employees.
Many are also looking for innovative, cost-effective ways to drive sales, and being ahead of the curve in protecting their staff and customers’ health is a smart way to do it.
At Klēn we provide an agile approach for businesses to build consumer trust as they navigate this crisis and beyond. Our proprietary AI also delivers business insights and recommendations that help businesses determine what new procedures customers value so that they can adapt their protocols.
Adopting detailed, thorough sanitation and distancing protocols above and beyond the local requirements and CDC recommendations can go a long way towards counteracting the drop in consumer confidence that could shadow economic recovery. Keeping up with changing regulations at the federal, state and local levels and ensuring that customers are aware of the measures your business is implementing to ensure the health and that of your employees is an essential part of moving forward. Klēn is focused on helping businesses rebound and build a better way forward in this new economic environment.