Alignable: Road to Recovery Report (October 2020)

DATA INSIGHTS | COVID-19 IMPACT/MONTHLY REPORT |

Alignable’s State of Small Business Report: 

The Road To Recovery, October 2020

By Eric Groves – Alignable, Inc. 

It's All About Consumer Confidence

15-Second October Summary

• Elevating Consumer Confidence Prioritized Over New Funding
• Q4 Projection: 42% of SMBs Might Not Make it to 2021
• YOY Consumer Spending Down 74% for Arts & Entertainment / 50% for Restaurants
• October Hiring Outlook: Flat
• 67% of SMBs still Negatively Financially Impacted by COVID
• 14% of SMBs see Positive Impact

Introduction

Alignable has collected over 520,000 business owner responses, since mid-March, mapping the Coronavirus Impact and Recovery of the Small Businesses Economy across the United States and Canada. Unless otherwise noted, polls in this report were conducted among 7,726 business owners during the week of September 28, 2020. 

This month’s report was written during the first week of October. In addition to our overall coverage, this month we’ll be paying specific attention to consumer confidence and how it will make or break the small business economy leading into 2021.   

We ran an additional survey from September 18 – 21, 2020 to get a deeper understanding for how the Coronavirus was going to impact business closure rates by the end of the year. This poll had 6,345 respondents.   

Finally, we’re also sharing very eye-opening revenue data from our friends at Womply (a great platform that provides apps, APIs, marketing, and financial tools enabling local commerce.)

SEPTEMBER CORONAVIRUS IMPACT LEVEL

• 67% Of SMBs Still Experiencing Negative Impact
• “Significant Impact” Drops to 42%
• Coronavirus Lift Experienced by 14%

Overall, small businesses experiencing negative impact from COVID-19 decreased by 3% to 67%. Those business owners experiencing “significant impact” decreased 3% to 42%, as well.   Businesses reporting positive impact was relatively unchanged at 14% of respondents. 

When we look at the past 5 months, we continue to see an encouraging trend of improvement in the overall level of impact. 

Direct quotes from business owners taking the survey show great diversity in their experiences.

“I’m just back to work, which is great. I make movies.”

“I’ve gone virtual, conducting video counseling. And I have to say, it has worked out very well.”

“We’ve seen tremendous growth since March 2020.”

“My business is good, but my employees are leaving, and I can’t find new ones to replace them.”

“We have a new business and we work with restaurants, bars, event venues, and liquor stores. The only sales we can possibly make now are to liquor stores.”

“It’s just a chaotic market for divorces and child custody arrangements. Some people are moving forward regardless, but the process is slower, and the parties pay less attention to the matters at hand. Life is complicated for many litigants and even more so now with the distancing and apparent desire to stay at home and take little action to solve problems. There may even be some people out there using the pandemic as a pretext to work slower or delay an exchange of documents due to COVID-19 regulations.”

“I own a pet resort. No one’s traveling and leaving their pets here, and I’m paying $12,000 per month in rent.”

Q4 Impact

To get an even better understanding for how business owners are anticipating the rest of 2020 might turn out, we asked them to compare Q4 2019 revenues to what they were anticipating for Q4 2020, and the percentage of those revenues they would need to attain to stay in business into 2021. We presented our full findings in this Q4 Outlook Report. 

REOPENING STATUS & BUSINESS CLOSURES

• Fully Reopened Businesses Rise 5% To 65%
• Fully Closed Status Drops To 10%
• Majority Of Closed Businesses (89%) Intend To Reopen
• But Is Trouble On The Q4 Horizon? Business Closures Estimated At 42%

We continued to see further improvement in the number businesses reporting they were fully reopened in September.  The percentage of businesses fully reopened increased 5% to 65%.  The number of fully closed businesses decreased slightly to 10%, while 89% of closed businesses reported they planned to reopen which was a 2% increase since our August report.

Q4 Business Closure Outlook

A key finding in the Q4 Outlook Report was 42% of small business owners are not anticipating having the revenues necessary to sustain their businesses into 2021.

This projected impact was not only expressed by Main Street retail (which was at 45% overall), but also by B2B business owners, where 38% anticipated being at risk of closure. If these predictions become a reality, small businesses across many different industries and regions could be devastated.

Here’s what they were saying in conjunction with this survey:

“We’re still closed, because other renters are too afraid to reopen the building!”

“I have an Internet business. If customers don't have extra money to spend, they won't spend it with me. Except for masks. Selling those doesn't make enough to really stay open indefinitely, but it keeps me busy.”

“My business needs to get real estate developers and related businesses back in growth mode to fuel new design and construction.”

“I worry about the government and its paralysis by analysis. Small businesses really need to move forward to survive.”

GREATEST RECOVERY CONCERNS

• Having Sufficient Financial Reserves Is The No.1 Concern, Again
• 15% Of Business Owners Have No Fears About The Recovery
• Will Customer Fears Recede Before Financial Reserves Run Out?

In September, we saw overall concerns continue to slowly decline; however, it’s difficult to tell how the current resurgence in cases will impact these concerns in the coming months. The primary concern business owners have continued to be their ability to retain sufficient financial reserves as they try to get through the crisis.

If they run out of cash before the can recover much of their pre-COVID business, many will have to shutter.

Here’s where Consumer Confidence plays a role. 

There are really only two ways to get the necessary financial resources to small businesses in order to enable them to get through this crisis: 

1. We can continue to provide Federal Government Relief similar to the Payroll Protection Program launched in April.

OR

1. We can take the actions necessary to rebuild our local economies at the grassroots level by working to create safe ways for consumers to return to businesses. 

When we asked business owners which they would prefer, the clear winner was getting the case levels down, so consumer confidence would return, as you can see here.

Direct responses from the small business owned polled really put these concerns in their proper perspective, showing a few related issues at the same time. Here’s what our members had to say:

“I’m worried about the long-term negative effects of less consumer confidence. Plus customers are not spending like they did, because many of their budgets have been cut or frozen.”

“As an indoor restaurant, customers are afraid to come in. As an event venue, people are afraid to reschedule events. And events booked are much smaller like tiny weddings. No school events are being booked. And we lost 12 school events, plus three bar mitzvahs, a Sweet 16 party, and two weddings.”

“Customers are still afraid to return, and employees are afraid to work. I'm still losing money and now I’m out of PPP funds.”

“My financial reserves ran out 3 months ago. I have been depending on loans from family members and friends to cover costs. As an owner, I have not paid myself for the last 6 months.”

“Cash flow is an issue and customers who are slow to pay are adding to my problems.”

“Many of my customers have shut down their businesses permanently, which leaves me in a precarious position.”

“The supply chain has broken down. Our only issue is keeping our shelves stocked. COVID-19, fires on the West Coast, short-staffed vendor warehouses, and merchandise not being shipped in an expedited manner are all problems for us right now.”

“I’m a cat breeder and I’m afraid to have people come into my home to look at my kittens.”

CUSTOMER DEMAND

• Improvements In Demand Level Off In September
• 35% Of Open Businesses Report Return To Pre-COVID Customer Levels
• While SMBs Reporting Less Than 50% Of Customers Returning Grows 2% To 36%

Recovery depends on customers returning to businesses. And, unfortunately, we lost some ground here in September.

The percentage of businesses reporting that they had less than 50% of their pre-COVID customers return actually climbed for the first time in the past few months. 

When looking at the outlook for October, there seems to be a divide with little optimism among businesses below 50% of customers returning, and those who are currently experiencing levels in excess of 75%.

REVENUE LEVELS

• Revenue Growth Continues To Lag Behind Customer Growth
• 45% Say Their Revenues Are < 50% of Pre-COVID Levels

The most important component of economic recovery is revenue returning to pre-COVID levels.  This will require both a return of customers along with the purchasing behavior they had prior to the crisis. 

In the chart below, you can see how revenue growth is slower than customer growth for all businesses operating below pre-COVID levels.

September saw some improvements at both the lowest and highest ends of the spectrum. However,  those in the middle of the pack -- from 26% to 90% of revenues returning -- saw little to no improvement. 

Here’s where the data collected by our friends over at Womply really tells the story.  With their permission, I am cribbing a note shared with me by Womply’s Head of PR Dallin Hatch on what they have found through their research, which includes data through September 17, 2020. (Please let our Head of PR Chuck Casto know if you would like an introduction to Dallin). 

The High Level:

• Total consumer spending at local businesses is down 18% YOY.
• 19% of all small businesses are currently closed or otherwise not transacting.
• For *only* businesses that are open and transacting, sales are trending up, with average revenue up 10% year over year.

Industry breakdowns add more context and color:

Restaurants:

• Total consumer spending at local restaurants is down 52% YOY.
• 23% of all local restaurants are closed.
• Those that are open are averaging 18% less revenue than they earned this time last year.

Bars:

• Total consumer spending at local bars is down 35% YOY.
• 36% of all local bars are closed.
• Those that are open are averaging 4% more revenue than they were this time last year.

Retail:

• Total consumer spending at local retail shops is up 5% YOY.
• 16% of all local shops are closed.
• Those that are open are averaging 28% more revenue than they were this same time last year.

Health & Beauty:

• Total consumer spending is down 39% YOY.
• 25% of all local health and beauty businesses are closed.
• Those that are open are averaging 16% less revenue than this same time last year.

Lodging:

• Total consumer spending is down 46% YOY.
• 15% of all local lodging businesses are closed.
• Those that are open are averaging 31% less revenue than they were this same time last year.

Arts & Entertainment:

• Total consumer spending is down 74% YOY.
• 63% of all local arts & entertainment businesses are closed.
• Those that are open are averaging 32% less revenue than they were this same time last year.

Comments from the small business owners we polled showed even more of the issues around consumer (and corporate) spending and how this is affecting everyone from performers to fashion boutiques.

“At Christmas time, comedians like me usually do ‘Corporate Gigs.’ From mid-October through New Year’s Eve, an experienced, corporate comedian can make upward of $10,000. But there will be no corporate gigs in 2020, because the rooms filled with 500+ people won’t exist due to COVID protocols.”

“Customers are not as concerned about wearing nice clothes, which hurts my boutique. They’re not going anywhere, so why would they need nice new outfits.”

“Many of my customers are not able to buy the products from me they want to buy, because of the financial strain the crisis has put on them.”

“My products fall into a small “luxury” category. I feel like shoppers are cutting out the non-necessities this year, which will hurt me a lot in Q4.”

“My business relies on people flying, It’s NOT going to recover for a very long time. People are working from home and not traveling. My business is down 98% YOY! Holiday times are always big for me, but not this year!”

“Much of my business is with hotels and many of them are still closed.”

HIRING & ANTICIPATED EMPLOYEE GROWTH

• Why Economists Should Pay Attention To Small Businesses
• October Hiring Outlook Is Flat

For the past few months, small business owners have correctly signaled the outlook for job creation and elimination. In July, they anticipated a significant uptick in employment going into August and then accurately predicted a slowdown/reversal for September.

Reviewing recent jobs reports, it looks like they were spot on. If their predictive skills hold for October, we should see little to no improvement in job creation over the next 30 days. 

EDITORIAL SECTION

We encourage you to join the movement to help local businesses and economies recover…

Legislation Needed to Protect Our Small Business Economy

Large corporations and their lobbyists have long used “we’re helping small business” as a trusted trojan horse to enact legislation or change tax code in ways solely for their benefit.

In hindsight, when we look back at the devastation caused by the prolonged Coronavirus Crisis to the small business economy, what will stand out most is the lack of cash reserves on hand at the outset. 

We can fix this for the future.   

I believe what’s needed is a tax law change which enables small business owners to create a Business Investment Crisis Fund. 

Think of it as an emergency IRA small business owners contribute to on a tax free basis.

I’d appreciate if you’d give it a read and share your perspectives in the comment section or with me directly. That way we can hone this over the coming months and present it to the appropriate committees in early 2021. 

#MyMoneyStaysLocal Movement             

As mentioned earlier, economic recovery can only happen with a massive change in human behavior.  The Coronavirus Outbreak caused us all to shift into survival mode.  As local businesses were forced to close, we shifted the vast majority of our purchasing power to online businesses that delivered products directly to our door.  While that was great for companies like Amazon, the impact of this change in our behavior was devastating to local business owners.

Changing our behavior for a day in November when we are all encouraged to Shop Small on Saturday isn’t going to solve this problem.  We need a long-term shift in consumer behavior within all of our communities.

We believe the first step in moving in this direction is for us all to simply do the math and understand as business owners and consumers how much of what we spend currently stays within our communities and how much goes elsewhere. 

I did the math both for Alignable (66%) and myself (44% in July and now I am up to 50%).

I encourage everyone reading this report to do the same and share your numbers with others.  Only by bringing awareness to these levels can we create the movement necessary to create the change needed for our economies recover. 

Learn more about the #MyMoneyStaysLocal Movement and please join us!

ABOUT THE ALIGNABLE RESEARCH CENTER

Alignable is the largest online referral network for small businesses with over 5.5 million members across North America. 

We established our research center in early March 2020, to track and report the impact of the Coronavirus on small businesses, and to monitor recovery efforts, informing the media, policymakers, and our members. 

For more details about any of these findings, including the methodology behind our polls, please contact Chuck Casto at press@alignable.com.

FOR ADDITIONAL COVID-RELATED POLLS & INSIGHTS FROM ALIGNABLE: 

Visit Alignable's Research Center Home Page

Visit Alignable's COVID Resource Center