How will the COVID-19 global pandemic impact small businesses? Home / How will the COVID-19 global pandemic impact small businesses?
The rapid spread of COVID-19 has shaken up economies all over the world. We’re in the midst of what economists say is an unprecedented global collapse in production, sales, and business confidence. One of the largest sectors affected by this are the small business owners and entrepreneurs that comprise 90% of the total business population. Without swift government action, even the healthiest of small firms are at risk of bankruptcy. Designs.ai has put together a list of the primary impacts of the COVID-19 global pandemic on small businesses.
1.) Reduced consumer spending
One of the largest impacts of the COVID-19 pandemic is the increasing rate of unemployment around the world. Industry giants like Marriott have laid off thousands of their workforce in recent weeks, and many retail establishments have mandated their employees to take no-pay leaves until further notice. Without job security, consumers are seeking to cut costs as much as possible — especially for non-essential products and services.
According to Business Insider, over 3.3 million Americans have applied for unemployment benefits as of March 21. Others have begun seeking short-term loans to safeguard themselves for the year ahead.
Trends in China reflect what the global small business community will likely experience in the following months. Over 85% expect to run out of cash in the next 3 months, and, while all predict a net loss in revenue, 30% project as much as a 50% decrease.
The airline and hospitality industry are among those hit the hardest by the pandemic. Despite government bailouts, the CAPA Center for Aviation reports that most airline companies will likely declare bankruptcy by May 2020. This hurts small to medium enterprises (SMEs) that rely on tourism revenue to stay afloat.
2.) Decreased popularity of brick-and-mortar stores
Prior to the pandemic, SMEs thrived on their brick-and-mortar stores for revenue. Consumers spent over 60% of their discretionary monthly income in-store, and e-commerce comprised only 9.46% of total retail sales.
But with the increasing number of countries declaring community quarantine, brick-and-mortar SMEs are seeing sharp declines in sales. According to Stacey Wilditz, president of retail consulting firm SW Retail Advisors, “Right off the bat you are talking about a 70%, 80% — definitely over 50% hit to sales for companies that sell discretionary items such as clothing, footwear, handbags and jewelry.” With strong social distancing campaigns in place, many retail establishments are also cancelling Spring sale campaigns including Easter, Mother’s Day, and Graduation.
Of total brick-and-mortar establishments, SMEs are expected to take the hardest blow. As much as 98.6% of all physical retail establishments are small to medium enterprises. Yet, despite predictions of a looming recession, 44% of small businesses have not taken any measures of preparation.
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