Alignable: Road to Recovery Report (Q2 2022)

Spring Stall?  What's Up and Not with Recovery

• 42% SMBs No Longer Affected By COVID (Up 7%)
• Recovery Slips Again: Only 27% Fully Recovered (Down 2%)
• Recovery Date Delayed By Another Quarter: Q4 2023
• Inflation Remains Greatest Concern, By Far
• But 59% Also Worry About BA.2 Variant

Overview

This month’s report features data collected from 2,279 small business owners between 3/31/22 to 4/26/22, along with historical data from over 675,000 responses collected since March 2020. For more details about our research and methodology, please contact Chuck Casto at chuck@alignable.com.

Note: We’re switching to a Quarterly Road To Recovery Report effective this month, so your next Road To Recovery update will be in July for the beginning of Q3 2022.

But rest assured, you’ll still receive monthly special reports and other updates from Alignable’s Research Center based on regular polls tracking the latest trends related to inflation, rent, revenue, customers, consumer spending, hiring, e-commerce, politics/legislation, the effects of the war on SMBs, and other news topics. If you have other key issues you would like us to research, please reach out to Chuck with suggested themes and our Research Center will be happy to consider them.

Now, here’s the latest.

COVID RECOVERY: Optimism, Worry, & “Meh” Emotions

• Significant Negative Impact Drops to New Low: 22%
• Those No Longer Experiencing Impact Grows to 42%
• New Concerns Emerge As BA.2 Cases Increase

Let’s address welcome silver linings, first.

• The significant negative impact of COVID is at a pandemic-era low of just 22% (down 5% from 27% last month).
• And 42% of SMBs say they’re no longer experiencing any impact from COVID (up 7% from 35% last month).

This chart reflects some of those positive changes:

Those statistics alone are encouraging. But when you see the following small percentages of industries citing strong negative impact, this particular COVID news feels quite good. Most categories show negative impact rates in the 15% to 30% range.

However, this wonderful news loses some luster when you consider how record-breaking inflation continues to dampen small business owners’ outlook, keeping us from declaring the small business economy is on the mend. 

Add other problems including the broken supply chain, crippling gas prices elevated by wartime sanctions, a daunting labor shortage, no improvement in customer counts or revenues, and a decline in consumer spending and disposable income, the result becomes lower margins for SMBs, making recovery frustratingly elusive for the majority.

On top of all of that, there’s been an increase in Omicron variant BA.2 cases in the Northeast and other areas in the U.S. over the past few weeks, as news of this variant starts to grab headlines. (On that note, it’s concerning that 46% of event planners, among the most vulnerable SMBs to COVID surges, are having trouble yet again. We can only hope that’s not a harbinger of what might come for other sectors as the number of BA.2 cases climb).

Historically, each new variant has caused renewed worries with regard to recovery.  And this latest trend lives up to that expectation, in that 59% of our poll-takers expressed concern over the BA.2 increases (while only 32% claimed they’re not concerned at all).

In comparison to late November, when buzz about the first Omicron variant was just starting to pick up steam, SMBs are more concerned now (as only 44% were worried about Omicron then, with 43% saying they weren’t concerned at all).

At the same time, the 59% figure is lower than the 68% of small business owners in January who said they were concerned about Omicron. (But that poll landed after Omicron had already caused a recovery reversal trouncing the great growth trends from December).

So, let’s dig into the industries that are most concerned about what another COVID wave could do to their already fragile recovery efforts.

It’s not a surprise to see the majority of event planners, photographers, massage therapists, veterinarians, beauty salon and gym owners, as well as retailers and restaurateurs demonstrate more worries about BA.2, since all of these industries thrive amid person-to-person contact.

But what gave us pause was that 76% of the doctors polled have expressed some degree of concern. That gives us the feeling that they’re taking this threat perhaps more seriously than the feds, local governments, the airlines, or nearly anyone else. (Maybe we should listen to them, as they likely know more than others do right now).

What’s The Buzz On The Local Level?

On that note, we wanted to share with you how SMBs in key states were feeling about the BA.2 situation. This list mirrors some of the top states that showed concern back when the first Omicron variant started to appear on the scene.

In fact, back then and now, Massachusetts held the top spot, followed closely by New York. Given that cases are going up more rapidly in the Northeast right now, that certainly makes sense.

So, 79% of poll respondents from Massachusetts expressed concern about the effects of the BA.2 on their business recovery.

In New York, that figure was 76%.

And rounding out the Top 3, 70% of Illinois-based small business owners are worried about variant BA.2.

Even Greater Concerns About BA.2 In Canada

Generally, Canada has had more intense and longer-lasting struggles with COVID than the U.S. has experienced as different waves have impacted that country.  And worries about the latest variant are more pronounced, too.

Overall, 70% of Canadian small business owners have expressed concerns about BA.2 hurting their business recovery – 11 percentage points higher than what we found among U.S.-based SMB owners. And only 22% of Canadian SMB owners say they’re not concerned at all, which is 10% less than in the U.S.

Back in late November with the first Omicron variant, only 44% of Canadians said they were worried about it.

And in January, that number had escalated to 70% -- reflecting the same degree of concern they’re feeling now.

Looking at key provinces, 74% of Canadian small business owners in Ontario say they’re concerned -- 4% more than the already-high national average.

Fewer SMBs are concerned in Alberta (60%) and British Columbia (59%), but those numbers are still quite high.

A Few Reasons This Wave Might Be Better

But, trying to err on the side of hope and positivity, let’s also keep in mind that, so far, the total number of people contracting the BA.2 virus is much smaller than the masses who caught the first Omicron variant. Let’s hope that continues to be true moving ahead.

And we’re already in the spring season, so more outdoor activities likely will reduce the impact of this variant both in terms of people who contract it, and businesses that are badly affected by it. In addition, many businesses are better equipped to maneuver around COVID waves, which could help, as well.  

That said, here are several direct quotes from small business owners representing a variety of opinions about the ongoing effects of Omicron and the rise in BA.2 cases.

Compared to past reports, you’ll note that more people are worried about the fear of BA.2 than the variant itself.

“I’m very concerned about this variant, but more because I fear the mask mandate coming back, which has proven more detrimental to my business this past year than the coronavirus itself.”

“I worry about a COVID resurgence, but I’m more worried about not being able to pass my costs onto customers. This inflation is much worse than COVID ever was.”

“Can't move forward!! The coronavirus was a cause of debt, and it is not easy to get out of this.”

“Always need to be cautious. Get vaccinated.”

“All of the viruses don't concern me, but they sure concern a lot of other people, which doesn't help me at all.”

“We have to work together to get complete control of COVID, period. Wearing masks & practicing social distancing along with getting vaccinated are powerful weapons to defeat COVID. Do it!”

“Not concerned. Never took any of the shots, and won't start now.”

“For myself, I think we're going to have to live with COVID for quite some time, if not forever. I’ve had it at least twice. And this hasn’t helped my efforts to go get a job.”

“I must be personally careful to keep safe and healthy.”

“I have closed about 90% of my business due to COVID, inflation and more, already. This could be the last straw for me.”

“With COVID shutdowns in the past, and ongoing fears, people have lost interest in getting a gym membership.”

“So sick of COVID, I don’t care what happens. It’s all a joke.”

“Concerned for others still with a physical world mindset & approach versus going 100% online.”

“Our business has been great over the past two years and I’m sure we’ll just keep going – variant or no variant.”

“Retooling and pivoting again.”

"Business is better than ever."

“What recovery? We’ve never had a downturn.”

STATE OF THE SMALL BUSINESS ECONOMY

• Anticipating Summer Rebound?
• Revenue and Customer Standstill
• Inflation Impact Pushes Full Recovery to Q4 2023

We continue to define full recovery as the point where 80% of businesses state they have attained levels of monthly revenue matching (or exceeding) what they generated prior to COVID. 

We’ve continued to see this milestone shift out in the minds of business owners.  In January business owners were anticipating this to occur in Q2 2023, last month in Q3 2023 and now a month later, we’re looking at Q4 2023. 

Currently, only 27% of SMBs state they have achieved full recovery, this represents a 2% decrease from the prior month and 16% decrease from YE 2021. (Let’s face it, this is discouraging and not a good way to start a “recovery” year).  

Recovery can only happen when businesses are open, customers and revenues return to pre-COVID levels or higher, and margins enable businesses to sustain themselves without outside relief or support. 

Here’s this month’s recap across all of those fronts…

Are Businesses Open?

Hold on for another silver lining here.

The setback we saw last month corrected itself with businesses fully reopened hitting a post-COVID crisis high of 74% and we’re hopeful to see that climb to 80% by the outset of the summer season.

What’s Holding Back The Recovery?

In a word, inflation. The increased costs headlining the news continue to significantly inhibit economic recovery for business owners.  And for the first time since we started tracking concerns in late 2020, we’re seeing “Ramping Up Revenue” jump into the Top 4 concerns, replacing government reclosures as a top fear. Given current revenue challenges, that makes perfect sense.

Looking at what had been our Top 4 concerns since Q4 2020, you can see how inflation burst onto the scene in Q3 2021 as a major challenge, and how it’s held the top position for most of the time since then.

These quotes from business owners tell us how rising costs and access to resources are impacting business owners across North America. Very few actually love inflation (retirement planners, antique dealers and the like), while most find their margins squeezed like they’ve never been squeezed before. For some, sadly, this kind of crippling inflation represents the end of the road.

“About to close my business of 40 years.”

“Business is almost dead. Very few home inspections are happening. Inflation is slowing down construction.”

“None of my SBA loans ever came through and the bills have piled up.”

“Made it through the worst of COVID, but inflation’s really hurting us now, including gas prices.”

“California’s regulations, taxes, illegal labor, and bureaucracy-saturated markets have created a Venezuelan business atmosphere.”

“Gas prices are affecting my bottom line.”

“I’m forced to raise prices as material costs have gone way up for metal and other supplies.”

“Inflation has slowed down commercial construction in our area, which is hurting my business a lot.”

“Our business is slowing down, but was great during the height of COVID. We sold a lot of TVs, Internet hook-ups, and laptops.”

“Everything is more expensive, even groceries. Hurts consumers’ ability to buy my goods.”

“Can’t afford the workers I need, because my margins are down, and rebuilding will be slow without workers.”

“COVID, the war in Ukraine, inflation, government funding, gas prices – it all adds up to needing more customers – and more sales.” 

“Only now, after two years is our business being allowed to reopen here on Kauai.”

“I have a resort store. It’s too early to tell if business will get better.”

“Can’t find a lot of products I need to sell. Some orders are a year out. The supply chain is still a mess.”

“Making slow progress, holding our own.”

“Our business is slowly getting back to normal.”

“Business has been slow for two years, but over the past two or three months, we have started to recover.”

“Business has never been better for us.”

Are Customers Returning?

Not yet. Still waiting. 

What we’ve been looking for is continued movement down on the left side of the chart with increases on the right.

While we saw some progress towards the end of 2021, so far this year, we’ve seen a reversal of fortune with more businesses sliding back to Q3 2021 levels. 

We asked business owners how this might change in the coming 30 days, and as you can see below, they’re currently not anticipating much if any change with regard to customers returning to their businesses.  And that is disappointing.

How About The Money?

For businesses at the lowest end of the spectrum (currently generating <25% of the revenues they had pre-COVID), we’ve identified an even more concerning trend since the beginning of the year. 

While we saw slight deterioration on the customer side for this segment, the hit on revenue was even more pronounced.    

We also saw continued erosion at the other end of the spectrum with those businesses generating >90% of pre-COVID revenues also seeing a significant falloff.

Consumer Spending Crisis

Based on comments we’ve seen in our other polls, we decided to ask this time around about consumer spending to get at the root of some of the obstacles suppressing revenue generation.

We asked a question that addressed both:

• What SMBs with consumers as customers have seen over the past month regarding consumer spending
• And how much the small business owners -- as consumers themselves – were changing their spending habits given inflation.

The answers were quite telling, showing that:  66% say consumer spending has declined over the past month.

• 34% said customers in their operations are spending less
• 32% said, as consumers themselves, they’re reducing their purchases, as they have less money to spend.

Those statistics show just how much ongoing and increasing inflation has reduced revenues for many small businesses over the past few months.

And if you’re generating  less revenue and costs are going up – it’s very hard to recover.

When Can We Claim Mission Accomplished?

Not until the end of next year, at the earliest.

As mentioned in our opening, our internal level where we feel confident saying “Mission Accomplished” is 80% and since the beginning of 2022, we’ve seen this mystical date shift out from Q2 2023 to Q4 2023.

That’s a pretty significant shift in just a few months’ time. 

As we noted earlier, the total percentage of small businesses that have achieved their pre-COVID monthly revenues is down again by 2%, currently landing at only 27%. This is tied as the lowest monthly recovery rate over the past year.

Some industries are performing much better than this, but others are having extra trouble with all of the forces at work confronting small business owners. Let’s take look at the latest chart.

This deep dive pinpoints which sectors are farther along in their recoveries, and which ones are struggling the most. And for almost all of them, if you track them now over the past six months, it has been a bit of a roller coaster ride.

And that ride is far from over, as even the most highly recovered categories (as of now) can only boast half of their peers have fully recovered. And those figures fluctuate every month, as you can see.

Finance still tops the list with 51% of small business owners in that industry saying they’ve fully recovered (with a nice 3% lift in April, after a few months of small drops). We were waiting for tax season to kick in, so there was an uptick.

But given that this is often the busiest time for accountants and others in finance, you would think the lift might have been more substantial.

Strides made in the manufacturing, automotive, retail, and restaurant sectors are impressive.

To see that Main Street retailers made a major jump (11%) from March to April is beyond heartwarming, as this sector suffered all last year, until the holiday season, and then slumped again in the first few months of 2022.

For restaurants, it’s even more inspiring, as this often-beleaguered category nearly doubled the percentage of owners who have fully recovered. That 16% jump in the right direction could be attributed to the warmer months and more dining outside.

Yes, two-thirds of restaurants are still struggling, but it’s still a nice improvement over last month.

Moderate jumps for construction and real estate sectors, after both suffered dips from January to March, shows the influence of the ever-powerful spring real estate market.

However, ongoing supply chain issues, skyrocketing costs for materials, and a labor shortage in the construction industry are hampering new construction projects, according to realtors, home inspectors and construction company owners.

And that contributes to a lack of inventory, which many real estate agents claim is also a hurdle right now. That said, with the increased price of homes, it’s a seller’s market and they should make the most of it.

One other threat looms for these industries and that’s rising interest rates. So, we will need to keep our eyes on construction and real estate in the coming months to see if these industries continue to overcome their obstacles.

Recovery Reversal For Many Categories

On the other side of the coin, we found many different sectors are suffering more than they were earlier this year.

Declining recovery rates among lawyers, beauty salon owners, entertainers, event planners, and photographers usually accompany resurgences in a COVID variant, as nervousness sets in and many of their clients or customers start to cancel or indefinitely postpone their appointments.

Court dates for non-emergency legal action, like many divorces, are pushed off.

Anything related to entertainment, events, art shows, and the like also get delayed, to avoid super-spreader incidents.

In fact, several poll-takers noted that cancelations have started to increase over the past few weeks.

Some attribute those to more BA.2 fears, and others blame high inflation and people limiting their spending, as they have much less disposable income given elevated prices on gas, groceries, and just about everything else.

Here are a several quotes reflecting some of the increases and declines in recovery rates. As you’ll see, they bounce between extremes, but fears about inflation, interest rates, the supply chain, and the labor shortage continue to keep many small business owners tossing and turning in their sleep.

“Business is a little slow right now. I'm in the tour industry, so gas prices may be the cause, as we are a land adventure tour business. We're hoping that our fair prices (we are actually offering discounts this year) will keep people encouraged to book our tours.”

“I’m actually looking for a job and have been for a while, given the ongoing struggles of my business. It's an uphill battle and still there's a lot of competition.”

“I’m just taking an inner look at myself and reassessing my business as I gear up for a new phase. Putting my ducks in a row and about to relaunch.”

“Running a business just got to be too much in this volatile climate, so I am retired now. Just got too tired of dealing with politicians that didn’t have my back.”

“Opportunities for sales have not reappeared yet.”

“Orders are about 10% of what we were experiencing prior to January 2020.”

“Making progress. But we’ve had vehicular setbacks, and the price of gas is hurting us, as my business involves a lot of rural travel.”

“Business is up, but so are expenses.”

“I have seen business activity pick up in these last 2 1/2 months to levels of activity I haven’t seen in 2 1/2 years.”

“My business as a therapist got busier with the pandemic, and it hasn’t slowed down yet.”

Watching The Bottom Line

Operating margin provides the extra cash flow to pay down debts, reinvest in the business, and build up cash reserves for the next challenging time.

Here’s our deep dive into the margin busters of today’s small business economy:  

• The cost of supplies and inventory
• The ability for businesses to pass along increased costs to customers
• The cost and availability of labor

Cost of Supplies & Inventory

This month, 90% of businesses are reporting inventory and supplies costing more than pre-COVID levels.  

In addition, 36% are currently indicating their costs were more than 25% higher than pre-COVID levels.

Passing Costs Along to Customers

As prices increase, the ability to pass part or all of the increase to customers is critical for businesses to maintain their operating margins and generate the cash needed for recovery. 

Unfortunately, for many businesses this simply is not possible.

As you can see below, while 36% of businesses have seen their prices increase by over 25%, only 12% have been able to raise their prices proportionately. 

Also, only 59% of SMBs were able to pass along costs (at any level) to their customers, and that’s down 3% from March.

Statistics like these are prime examples of why the small business recovery slipped backwards this month, yet again.

Employee Costs

One of the other well-reported challenges is finding employees and the increased burden higher wages have on economic recovery.

Nearly two out of three (63%) of businesses surveyed this month indicated they were finding it difficult to find and hire employees – that’s down 2% from last month.

And 43% of businesses indicated they were facing significant challenges. 

Unfortunately, this labor shortage is far from being resolved. 

Adding to the struggles of small business employers, 68% of businesses are reporting they’re paying higher wages in comparison to pre-COVID levels. 

In their own words, many of our poll-takers complained about the labor shortage, saying it’s still quite daunting – for a variety of reasons. Though a few say all it takes is a lot of money (plus other perks) to get people to apply and to stay.

‘Hard to get good help. There is such an apathy for work right now. It's frustrating.”

“I run a trucking operation and I can’t find drivers.”

‘I have been trying to hire 2 people for over 4 months and have not had 1 person apply! I am paying over $5 more per hour than I did pre-COVID to my current employees just to keep them happy. And I’m offering the same to new hires if I could find anyone to apply!’

“It is significantly more difficult to find employees who actually want to do a good job. Many got spoiled by a year of free money to stay home while small businesses suffered and died.”

“Given inflation and other problems, I can’t afford to pay people what they want. Not sure I’ll ever win this battle.”

“Still, no one wants to work! It’s been months now. We can only cut our hours so much.”

“Our recovery would be easier and faster if we had more workers. Summer hiring isn’t looking that hopeful, either.”

“Rents are really high around here, keeping workers we can afford from being able to live here and work here. It’s really too bad.”

“Not a problem if you can tap the world for remote workers. We found everyone we need and we’re getting more and more to apply. But we also pay well and we go above and beyond to show everyone just how much we appreciate them.’

“This is complete HOGWASH! Employees just will not work for what a lot of employers want to pay. $30 per hour is now the new $20 for entry-level people, and employers need to accept that.”

So, Where Do We Go From Here?

We ask, once again, that all of you reading this report rededicate yourselves to supporting independent business owners across any industry, as many could still use a hand to get back on track with their recoveries.

And, as always, spend most of your money locally!

#OneMainStreet #SmallBusinessStrong

Thanks for reading!

ABOUT THE ALIGNABLE RESEARCH CENTER

Alignable is the largest online referral network for small businesses with 7 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, please contact Chuck Casto at chuck@alignable.com.