Small businesses across the country have seen their doors close. And that’s not just ‘newer’ businesses; some of these businesses have been flourishing for 20 or 30 years. These companies just do not have the resources or funds to keep them going in an environment where people are spending less while being held up in their homes. It is a natural conclusion to come to – people are working less, they get out less, so they spend less. Small companies make less money and cannot afford to buy stock, pay rent, pay their staff… the cycle is a big and scary one. It might even be justified to be called a whirlpool or cyclone. But we’re not ones to get dramatic.
On a serious note, there are massive implications caused by the closing of small businesses. These businesses are a part of local communities; they are ingrained in the culture and are part of what makes home, home. They provide services and jobs for your sister, your cousin, your mom, perhaps even you. Thirty years ago, over half of the American workforce was employed by small businesses. By 2017 this percentage dropped to around 47%. Now, with many small businesses closing, that number is dwindling.
In many smaller towns, small businesses are the heart of Main Street – and they depend on each other. When one or two close down, it creates a domino effect with more to follow suit. We are all holding our breath and waiting for something we have hopefully dubbed ‘The New Normal.’ The heart-wrenching truth is that, for many small businesses, this ‘New Normal’ means that they no longer exist.
Yelp reported in the Q2 analysis that of all the businesses who have closed their doors, 55% would not open again. More. Than. Half.
Earlier this year, Congress approved $700 billion in funding to help small businesses stay afloat during this crisis. But there was a catch, especially for very small businesses with fewer than ten employees, called micro firms. In a bid to help save jobs, the Payment Protection Program (PPP) was launched.
The program aimed at helping small businesses keep their staff on payroll. This loan could potentially be forgiven if the small business met specific criteria. One of which was that three-quarters of the funding went to pay salaries. This makes sense on paper: we want to save jobs, so we give companies the money to pay their employees. But in reality, salaries are not the biggest part of small and micro businesses’ expenses. Rent, stock, utilities, and other expenses often consume a large chunk of smaller businesses’ funds. That means that they do not meet the criteria to qualify for PPP – and if they did, they would have received funding for eight weeks. Two months. The funding ended in August, and we are now four months after it was signed into law on June 5th. Those two months have come and gone, and the small businesses that did manage to receive funding have used it already, with no end in sight for the crisis we find ourselves in.
The PPP simply delayed the massive economic impact that COVID-19 is having on small businesses. On top of that, many business owners are also facing the struggle of running their business, homeschooling their children, and managing their own personal health. For many of these businesses, there just doesn’t seem to be a way out. Small businesses generally do not have a lot of spare funds to help carry them through this extremely unique situation. They also cannot benefit from the Fed buying up corporate bonds – as large corporations can.
Online Sales – The Saving Grace.
In an attempt to reduce their overheads, many smaller businesses are closing their brick and mortar properties and going online. While this means that large expenses like rent could potentially be saved, it also means that they might no longer need all of their staff – adding more people to the growing pool of unemployed persons.
The other side of this particular looking glass is that one does not merely create an online shop and start selling products the next day. The eCommerce (online sales) industry is competitive; you need to build a client base from people who have never met you, never visited your physical store, who doesn’t even know whether you are a real person and legitimate business. There is a whole technical side of things that come into play like search engine optimization and algorithms, content, and paid ads all in the attempt to get people to your online store – and to convince them to buy something from someone they aren’t even sure is real.
What we are saying here is that small businesses depend on their online sales much more than they did in the past – and they put as much blood, sweat, tears, and passion into these virtual spaces as they do (or sadly did) pre-COVID-19.
Surely there is an easier way; why not just jump onto eCommerce platforms provided by big corporations like Amazon?
eCommerce Really is the Playground of Big Corporations.
Even in eCommerce (online sales), smaller businesses are struggling to compete with larger companies. Amazon alone holds a 38% share in the US eCommerce market. That means that 38% of all online sales in the US take place through Amazon. They are followed by Wal-Mart, who has a sales share of only 5.8%. Add these two to companies like eBay, Apple Inc, and Home Depot Inc, and more than half of all online sales are spoken for. Then we haven’t even spoken about companies like Target Corp and Costco Wholesale Corp.
In the second Quarter of 2020, Amazon reported a net profit of $5.2 billion. That is the money left over after paying all their expenses, including $4 billion spent on “COVID-19 related costs” to keep their staff and customers safe. Between March and July 2020, Amazon created 175,000 new jobs, the majority of which (around 125,000) will become permanent positions. So they are making money and creating jobs, that doesn’t sound so bad, right?
It makes sense to frequent massive eCommerce companies like Amazon. They are one-stop-shops that make it easy to get the things you need from the comfort (or confines?) of your own home. We could even argue that they give small businesses a platform to sell their wares without needing to deal with the logistics of setting up, running, and maintaining an online store.
So why don’t small companies use the resources provided by these eCommerce behemoths? It seems like a win-win situation and a natural solution for smaller businesses to keep going during this difficult time. Surely it has to work, considering that more than half the sales on Amazon are made by small and independently owned companies.
But there is a price. Sellers on their Professional selling plan pays the company $39.99 per month along with a percentage of their sales. This percentage could be anything between 3% (for high-priced items like watches of the value of $1,500) to 45%, with an average of about 15%. Then, if small businesses want to make use of services like packing, shipping, customer service, and returns, there are added costs. It is cheaper for some smaller businesses to sell their products in brick-and-mortar stores than on Amazon, but this isn’t a viable option in the current climate anymore.
Here small businesses come second again as they cannot fulfill online orders while they are under strict Stay at home orders unless they can keep all their stock at home and somehow manage to arrange delivery.
You see, it’s not just about small businesses versus large corporations. It is about maintaining the integrity of small business so that we could still have some kind of ‘New Normal’ to come back to.