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The false hope of reopening is killing small businesses

“People are not comfortable going to public places yet.”

A big swing and a ferris wheel with people looking on.
A sunny day at Navy Pier in Chicago, pre-pandemic.
Andrew Woodley/Universal Images Group/Getty Images
Emily Stewart covered business and economics for Vox and wrote the newsletter The Big Squeeze, examining the ways ordinary people are being squeezed under capitalism. Before joining Vox, she worked for TheStreet.

Navy Pier is one of Chicago’s main attractions. Home to more than 70 businesses, the complex on the shore of Lake Michigan is normally filled with crowds on a summer day.

“Navy Pier is rocking, there’s people everywhere, there’s excitement, there’s fireworks, it’s a good time at Navy Pier,” said Stephanie Hart, the owner of Brown Sugar Bakery, which has two locations, one on the South Side of Chicago and the other at Navy Pier. This year, she says, “it just wasn’t the same.”

The pier shut down when the pandemic hit in March, and then reopened in June. According to Payal Patel, its communications director, attendance was just 15 percent this summer from the one before. It shuttered again after Labor Day and now plans to reopen in 2021.

“It was heartbreaking, not just about my business, but to see Navy Pier in that kind of condition,” Hart said.

During the pandemic, much of the conversation around small businesses has focused on lockdowns and reopening — just let things open back up again, the line of thinking goes, and everything will be okay. But the reality of the situation is that for many businesses, that’s just not the case. According to Yelp, more than 160,000 US businesses on its platform have closed since March 1, nearly 100,000 of them permanently. Data from Homebase, a team management software company, shows that the number of hours worked at small businesses is still about 20 percent below January.

“People are not comfortable going to public places yet. We’ve tried to put so many safety measures in place, but all of that, essentially, is not going to matter if people will not come,” Patel said.

You can’t force business as usual when life is not. Many businesses already operating with low margins pre-pandemic can’t survive under health-related restrictions that, while incredibly important, make staying afloat extremely difficult.

Beyond the restrictions, there are also broader issues afoot. With a deadly virus still spreading, many Americans simply aren’t falling over themselves to go out and consume. Millions of people have lost their jobs or are afraid they might, so they’re not as eager to spend their money on things they don’t perceive as necessary.

That leaves small businesses fighting for their lives.

Eric Huebner, who owns a gift shop called Best Gift Idea Ever Chicago at Navy Pier, has pulled out every stop he can think of to keep his business running. He set up a GoFundMe page to try to raise money, applied for a Paycheck Protection Act loan, and once he began collecting unemployment benefits, he put some of that money toward his business. He started selling his products via Facebook, too.

When the pier reopened, at first his sales were decent; he estimates he took in 60 to 70 percent of normal revenue. But then at the end of July, business fell off a cliff. “A $900 day could go to a $90 day,” he said.

Policies designed to help small- and medium-sized businesses are insufficient, in no small part because of this promise of reopening that fails to comprehend the depth and length of the crisis many of them are facing. Reopening the economy can’t save small business, and the false hope that it can is part of what is killing it.

“Customer is king in the United States, so what they want, they will get, but they don’t want anything right now,” said Claudia Sahm, the director of macroeconomic policy at the Washington Center for Equitable Growth and former Federal Reserve economist. “They can’t afford it, or they don’t want to go get it, or something’s holding them back.”

Consumers are spending less and spending differently

Even before pandemic-related lockdowns took hold nationwide, consumers began to change their behavior. They started steering clear of restaurants and staying off of airplanes. Then, the lockdowns resulted in a huge decline in traffic across industries — restaurants and bars, travel and hospitality, fitness and beauty — and subsequent layoffs. During the spring, you heard some economists and experts talking about a V-shaped recovery, the idea that just as quickly as the economy had contracted, it would also be able to recover. But the thing is, you can’t turn the economy back on like a light switch, especially when the virus isn’t under control.

Some people, including small-business owners, experts, and government leaders, are “focused too much on the lockdowns by themselves and not the actual risk of the virus, which is a major disruption to business,” said Adam Ozimek, an economist at the freelance platform Upwork and formerly of Moody’s Analytics.

Ozimek has experienced the problem firsthand: He is one of the owners of Decades, a sort of upscale entertainment complex with a bowling alley, arcade, restaurant, and bar, in Lancaster, Pennsylvania. After shutting down in March, Decades is now doing outdoor dining and takeout. It has some indoor activity within health guidelines, too. Still, the business is seeing weak demand. It’s at just 28 percent of revenue from last year.

Decades got a PPP loan, which is a forgivable loan if the business spends it to keep workers on the payroll for a certain amount of time, and a grant from the state. It’s still in the red. “We ran out of cash in September, and now we’re putting money into the business,” Ozimek said.

According to data from OpenTable, which tracks restaurant reservations and traffic, seated dining in the US is still down more than 50 percent year-over-year. A survey the company did of in the US and Canada found a quarter of respondents say they dine out once a week, but it’s still not “anywhere near as often as they did before — and it’s going to be a long time before they do,” said OpenTable CEO Debby Soo in an email. She also warned that things are about to get worse, not better: “The colder months will present new challenges for restaurants, especially considering the majority of diners view outdoor dining as safer.”

OpenTable has forecast one in four restaurants could permanently close due to Covid-19, though it notes that in countries such as Japan and Germany, which have done a better job of controlling the pandemic, the industry has rebounded.

Yelp found that while consumer interest (defined as US reviews, photos, and page views) has increased since the pandemic first set in in late March, compared this time last year, it’s still down about 33 percent. The same goes for gyms.

Erin Suggs, a hairstylist in California, recently told me that when her salon reopened for a while in the spring, business was much slower than it was in normal times — despite seeing the protests with people declaring they wanted a haircut on TV. “I was having cancellations all over the place,” she said.

The way consumers are and aren’t spending their money is not necessarily a linear story. Some of what’s changed is what people are spending on. Instead of going to the restaurant, they’re going to the grocery store. Instead of buying a dress at the local boutique, they’re ordering sweatpants on Amazon. Spending so much time at home has made people more interested in home-improvement projects, meaning trips to Home Depot.

While there was a steep decline in personal consumption expenditures in March and April, it rebounded in subsequent months. One issue still bearing out in the data is the effect of the additional $600 in unemployment insurance benefits to people who lost their jobs, which was in place during much of the spring and summer but came to an end on July 31. US consumer spending started to slow down in August, and as Reuters notes, spending on services is still 10 percent below where it was in before Covid-19 hit.

“This is a big deal,” Sahm said. “If services don’t come back, we’re really screwed, because that’s a big part of GDP.”

The Opportunity Insights Economic Tracker out of Harvard shows that total consumer spending across the US is still down by 7 percent compared to January, but that varies significantly across sectors. Restaurants and hotels are down more than 25 percent, transportation nearly 50 percent, entertainment and recreation 60 percent.

Businesses are experiencing the pandemic differently

Ruben Alonso III, the president of AltCap, a community development financial institution based in Kansas City that has supported numerous small businesses throughout the pandemic, told me the effects of the pandemic “was all over the board” locally. “You saw some businesses struggling and closing even and others flourishing.”

Not all small businesses are alike, even in the same industry, and whether or not they’re able to survive depends on a lot of factors — where they are, what they do, whether they’re able to pivot, how much debt and risk their owners are and are not willing to take on. Some of their fate is in their own hands, but not all of it.

Before the pandemic, Kiffany Bosserman’s company, Cottontale, largely entailed selling all-natural cotton candy at events. Once Covid-19 kicked in and events were shut down, she “pivoted hard,” investing in a dessert tricycle to pop up at local restaurants and coffee houses. Now, she’s in the process of setting up a storefront.

She’s gotten a loan from AltCap with a zero percent interest rate for the first year and thinks that will be enough to keep going, but it’s not easy. The corporate events that were the business’ bread and butter aren’t coming back fast, and while smaller events are happening, people prefer pre-packaged desserts to the live service. “We hustled and figured it out,” said Bosserman, who runs the business with her husband. “We’re not going out to eat all the time, but we made the sacrifices.”

Around reopening, some businesses saw a pretty immediate recovery thanks to pent-up demand, but eventually, that diminished and things evened out. “People are still coming in, even though they’re still working at 50 percent capacity, but that demand is not quite the level it was pre-Covid,” said Megan Crook, advancement and external affairs officer at AltCap.

Sunny Burden, who works at a pizza restaurant in Chattanooga, Tennessee, told me that business “plummeted” around the time they started indoor dining. “It’s kind of just now in the past month, not even, starting to kind of pick back up, there are tourists coming through,” she said.

For some businesses, there are workarounds for the situation — they can have few workers, reduce inventory, and find ways to run more efficiently. But that doesn’t solve the problem for, say, a gym that has invested in machinery and still has to pay rent, or a restaurant that even running at its leanest still can’t get customers in the door.

Trophy Bar in Brooklyn seemed as well poised as any small business to survive the pandemic — business was good pre-pandemic, it got a PPP loan for the holdover, and once restaurants and bars in New York were allowed to reopen with outdoor seating, it had a sizable yard to put back to use.

But following legal guidelines upon reopening meant Trophy could accommodate just eight tables safely and had to close by 11 pm. About half of its staff didn’t want to come back, either because they’d moved away or were afraid for their safety. Many New Yorkers have left the city or are hesitant to get out and about again, too. “Every time it rained in our backyard, there went our business,” said Mandy Misagal, who started Trophy in 2007 along with two business partners.

Ultimately, Trophy couldn’t cut it. It closed its doors on August 30. “Every turn we took, it was like, what if we end up in way more debt? That’s the scary thing about it,” Misagal said. “The choice is pulling the plug completely on your business or being in debt by the end of it.”

The economy is a network of causes and effects, and nothing happens in isolation. Jed Kolko, chief economist at the jobs website Indeed, pointed to the effects work-from-home trends have on businesses. Overall, nationally, Indeed’s jobs postings are about 19 percent below where they were last year (at the worst, they were down by 40 percent), but metro areas are the ones that have seen the biggest declines — places like New York, San Francisco, and Seattle. “In those places, retail and other local services are especially suffering,” he said. “If people are working at home, they are not going out and spending the way that they used to.”

Adair Morse, an associate professor of finance at the Berkeley Haas School of Business, said that policymakers’ failure to understand small business as a heterogeneous group led to failures on how they set up to help them. For example, her research looking at Oakland, California, found that PPP loans were effective in keeping microbusinesses with just a handful of employees afloat, but for businesses with more workers, that was less often the case. Many minority-owned businesses were shut out of the loans or struggled to get them as well. ”We really need to think about the size of small businesses and how it can support the different classes [of businesses],” Morse said.

This is a long-term problem — but not a permanent one

The belief that reopening would be a panacea for small business was wrong. That belief is also part of what is making it so hard for them to make it through. Policies to support small businesses were designed for short-term dips, not the long, deep economic slog we’re in for.

“We just didn’t understand that it wasn’t about just getting through it and then figuring out how small businesses would recover from that couple-month shock, it’s this lingering shock that their revenues are nowhere near what they used to be,” Morse said.

Morse, who helped structure California’s small business rebuilding fund, said she believes the best course of action would be to focus on supporting small businesses that are showing a capacity to recover, ones that are not necessarily doing spectacularly, but ones that aren’t doing half-bad. “When you keep some places from falling, you’re able to have spillovers to have other ones survive,” she said.

Ozimek warned that focusing too hard on businesses doing okay during the current moment risks leaving behind businesses that were just fine ahead of the pandemic and will be fine once again once the virus is under control. He and John Lettieri from the think tank Economic Innovation Group crafted a business relief proposal later included in a legislative package put forth by Republican Sens. Marco Rubio and Susan Collins.

“We need to help business make it through this temporary adjustment to get back to normal in the future,” he said. “Grocery stores are not always going to be this busy. Home Depot is not always going to be this busy.”

There are multiple policy-related solutions that could help small businesses in a more sustained way — grants, a bailout, or low- or zero-interest, long-term loans that they’ll have a lot of time to pay back.

“The best, as an economist, that I can think of doing is coming up with a product that is an incredibly affordable interest rate,” Morse said.

Small businesses are a vital part of the American economy. But we can’t expect consumers to save them — many people are afraid of getting sick and of losing their jobs, and they’re just not living their lives as they normally would. I love sitting in dive bars playing cards with friends, but if you open my favorite bar up tomorrow while Covid-19 is still out there, I’m not going.

Part of Navy Pier’s calculation in shutting down entirely is that it hopes that will help it and the businesses it houses survive by limiting operational expenses. That still leaves everyone figuring out what to do in the meantime.

Huebner has an invitation to put up a pop-up store at Chelsea Market in New York for a few months this fall. Navy Pier has laid off more than half of its staff, and many of those who are still working are on partial furlough. Hart is throwing her energy into her main bakery location on Chicago’s South Side, making adjustments to the space to make it safer, narrowing her menu, and building a website to beef up online sales and pickups. “There’s a ton of people who just don’t want to come in, so it’s not just about what we offer, it’s about what people prefer,” she said.

She is also working with other restaurateurs and businesses in the area to make it more of a collective attraction for visitors. They built a boardwalk and are putting together events. The message: “Eat, play, socialize, relax, wear a mask.”

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