Coming months will reveal the depth of the economic pain caused by public health measures to slow the coronavirus pandemic and how long it will take to bounce back, but North Bay businesses need to plan now how they will survive the crisis and bring back revenue, according to financial and tourism experts.
“This is an issue of depth and duration, and (public) policies are trying to shrink both of those in such a way that once we open up we turn the corner more quickly,” said Sonoma State University economist Robert Eyler to 735 professionals and civic leaders participating in North Bay Business Journal’s Business Recovery Conference webinar Thursday morning.
As the world reluctantly accepts a shift from “back to normal” to the “new normal”, industry sectors are strategically considering their futures, with a strong likelihood that a new business model will be required. Organizational change is hard, so this process will be difficult and for some, perhaps even emotional.
An informative article from the MIT Sloan Management Review describes the changes in operations many name brand companies have made since COVID-19. Most of the changes show how companies were able to leverage and pivot. This will be the prevailing strategy that most businesses take in the short-to-medium term. For a large company with resources like senior executives and cash, implementing change in a rapid way is possible. While small businesses are nimble, significant changes to a business model can be difficult and often not desirable.
Marin County has long been recognized as an economy of small businesses. Almost 70% of all payroll firms in the county employ 9 people of fewer. Despite the small scale of companies, the county is host to a highly diverse number of sectors. This provides a front row seat to the coming business model changes, whether they be in restaurants, health care providers, education, or even technology.
One of the most prevalent sectors in Marin County is retail. Already facing pressure from the growth of ecommerce, retail was hit hard by the shelter-in-place order that effectively closed doors for 2 months now. This article by Forbes suggests the retail landscape is going to significantly change in response to consumer shopping preferences, which will not only prioritize convenience (through online shopping), but also safety. Many small businesses provide a more personal touch but as noted by a representative of famed Marin menswear shop Gene Hiller, “Nobody’s going to want to buy a suit or sport coat curbside.”
Restaurants are a large source of employment in Marin economy. Credit is due to the many restaurants that were able to quickly pivot operations towards delivery and take out, yet many employees in this sector lost jobs. It may be too early to understand how this sector will adapt but what is clear is the need to guarantee safety for diners. Restaurant owners will need to re-think current business processes to support improved safety over labor and production efficiency.
Is this the future of dining out? Photo credit: image by willem velthoven
Specialty food and beverage companies were also quick to pivot, producing the same product but opening new sales channels, namely direct-to-consumer (DTC). In some cases, serving the DTC channel only required adjustments to existing web-based commerce or changing packaging to enable smaller scale ordering. Producers were already pursuing methods to shrink the supply chain to the end customer-COVID-19 will surely accelerate the DTC business model.
The real estate sector (including rentals and leases) is another major sector in Marin, representing almost 20% of the GRP in 2018. Although the Marin residential real estate market is hyper local, innovations in the sector launched pre COVID-19 could eventually appear. One such innovation, referred to as “iBuying” provides an alternative to would-be sellers by providing online, cash offers. Some iBuyers, like San Francisco-based Opendoor, put operations on hold during COVID-19 with the uncertainty of home prices but are slowly coming back, relying on sophisticated data analytics to model pricing. Again, the Marin real estate market may not be the place for iBuying but business models that can expedite transactions while minimizing human contact may become more desirable.
While Marin County is not a “tech hub” by any stretch, a high number of our residents work in the tech sector and many for start-ups. Start-up growth may be delayed by a smaller pool of available venture capital, but some have used the pandemic to retool their products to respond to new demands. One such start-up is Bay Area-based Pathr, which uses artificial intelligence to predict spatial movements. In response to new social distancing requirements (which may be with us a long time) Pathr developed “Socialdistance.ai”, an AI solution created to help businesses safely reopen and protect customers and staff by evaluating foot traffic, layout, and establishing social distancing options.
Longtime Marin businesses have showed resiliency before, remaining open despite previous recessions and competition from big box retail. Doing so this time might require wholesale changes to the business model but I am confident many will rise to the challenge of a post COVID-19 market.
As the world manages the COVID-19 crisis, there is a parallel effort to defeat the disease and limit the deep economic shocks. In the U.S., the Federal government has acted with more speed than ever before to put economic assistance in place, at the institutional level, the business level, and the human level. The logic goes that providing sufficient relief will carry us through to a point where the health risk is low enough for economic activity to resume and the broader economy to get back on track, ideally in a shorter period of time than it took in past recessions. The major outstanding question now is when will we get to a phase where economic recovery can begin? That question is being debated and will almost certainly be a state-by-state decision.
I understand most businesses (including sole proprietors) are in survival mode right now. At the risk of oversimplifying their plight, businesses’ ability to survive primarily depends on operating cash. “Essential” businesses have some opportunity to sustain a revenue flow (even if greatly reduced) while others will rely on negotiations with landlords or creditors to defer expenses. Perhaps some businesses will succeed in accessing federal support that will serve as a lifeline for the next 60-90 days. Many businesses, unfortunately, will not reopen. As this fight for survival plays out, MEF is already planning for recovery, by analyzing three critical questions:
What will the “snapback” sectors be in Marin? Marin County is a service economy and mostly oriented towards its residents. We have a high concentration of restaurants, salons, dentists, gyms and yoga studios, etc. When the shelter-in-place (SIP) order is lifted, these kinds of businesses will experience immediate demand, pent-up over the last few months. Understanding which sectors will be poised for a quick “snapback” will be important so that they can be sure to be ready (in terms of supplies, workers, credit, etc.) to accommodate the consumers and get their businesses back up to speed. There would be nothing worse than to survive the short-term closure and not be prepared to service customers when the economy opens for business.How will workers get their jobs back and how will employers increase their labor force? Many businesses have had to furlough or lay-off employees. How those businesses can maintain a relationship with current employees (Paycheck Protection Plan, limited hours, etc.) is critical so once they open their doors, they can meet customer demand. Businesses that expect just a temporary closure should already be looking for staff, even if they don’t know when they will reopen. On the flip side, Marin residents who have lost their job need new opportunities immediately. Fortunately, there are some resources, such as the CareerPoint Marin “Job Leads” and the Onwardca.org website that are serving as “go to” resources during this crisis and remain current. However, MEF is looking at more strategic workforce initiatives, by sector, to enable rapid scaling when the need eventually arises. One idea is an “employee exchange” where businesses that have demand for a specific skill but only on a part-time basis, might link to other employers to “share” an employee’s time by guaranteeing 40 hours of work.What will be the consumer patterns or trends that demand adaptation by businesses? Everyone is trying to envision the “new normal” and I have heard many plausible and creative ideas. The basic need will be assuring safety for customers. As the government attempts to secure our health, what extra measures will businesses be taking? What possible measures might the government impose on certain businesses? These are critical questions now being debated and businesses must have a voice here, less the parameters of operating be developed in a vacuum by public officials (which admittedly need this input from businesses).
The shifting narrative from survival to recovery is the critical focus for MEF today. We envision a collaborative effort, including our public officials, Chambers of Commerce, and businesses themselves. Write to us here at MEF (info@marineconomicforum.org) to share your ideas of how recovery could look or if you have a business and can specify what kind of needs you anticipate, we want to hear from you. There will be more funding and assistance available but understanding how to best deploy that is the critical question we must now all be debating.
Faced with plummeting sales and growing uncertainty over when life will return to normal, many businesses across Marin are bracing for more economic challenges in the weeks and months ahead as local and state leaders begin to consider slowly lifting coronavirus restrictions.
Tim’s Treads, a San Rafael tire shop, has stayed open throughout the shutdown, but sales have plunged by more than 70%, said owner Tim Falvey.
“There’s just not a lot of cars on the road,” he said. “And people who are staying home don’t need to change their tires.”
Falvey applied weeks ago for a disaster loan through the federal Small Business Administration, but he’s heard nothing about the status of his application. He also applied for a slice of the administration’s Paycheck Protection Program, but was notified on Friday that the funding has dried up.
Economist Robert Eyler wasn’t among those who thought Tuesday’s announcement by Gov. Gavin Newsom would be when the state would be back in business.
“What’s good about it is now we have six main bullets to watch in terms of where we think there’s going to be some lifting of the social policy,” said Eyler, dean of the School of Extended and International Education and a professor of economics at Sonoma State University. “One thing about the governor actually saying something with this specificity is that whatever data are available on the infection rates in that curve, and also on the supply and demand conditions in our health systems, are going to be watched very closely by a lot of people because they will be trying to predict the turn now, for whatever that’s worth.”
