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March 09, 2022

For many small businesses, recovery seems stuck in limbo land

Alignable: Road to Recovery Report (March 2022)

For Many, Recovery Seems Stuck In Limbo Land

Sentiment Improves with Omicron Decline
Financial Challenges Lengthen Recovery Outlook
Only 29% Are Fully Recovered Financially
Inflation Dominates as Greatest Concern

Table of Contents:

COVID’s Current Impact
Reopening Status
Customers & Revenue
Operating & Employee Costs
Alignable Research Center & Poll Demographics

Report Overview

This month’s report features data collected from 6,216 small business owners between 2/19/22 to 3/7/22, along with historical data from over 670,000 responses collected since March 2020. For more details about our research and methodology, please contact Chuck Casto at [email protected].

COVID RECOVERY OPTIMISM

Significant Negative Impact Drops to 27%
Those Experiencing Decline Jumps to 32%
Omicron Concerns Drop 50% in a Month

It was a crazy month in terms of overall financial impact with steep positive declines one can only attribute to the significant improvement in the Omicron case levels, since all other indicators were flat or negative this month. Let’s dive into the details.

While the overall level of businesses experiencing negative impact from COVID grew to 65% from 58% last month, the mix across the three components improved significantly.

Those experiencing significant impact declined to 27% from 32% and the most significant move was in businesses stating the financial impact was on a decline.

As we’ll see in the actual numbers, this can only be attributed to a sense of relief being felt as Omicron cases have dropped significantly over the past month.

While far from out of the woods with regard to recovery, with Omicron hopefully no longer a deterrent, the focus can once again shift back to impacting the key financial drivers which will finally lead to full financial recovery.

Drilling even deeper by industry, here are the sectors experiencing the most significant declines in COVID’s impact now.

Here are several quotes from small business owners representing a variety of opinions about the ongoing effects of Omicron, as case numbers decrease.

“Already closed now. I have back bills and I'm about to lose my house.”

“Allowing our governments to dictate if we can open, vaccinate or go unvaccinated, or wear masks or not – all of that has to be over with!”

“Closed due to the pandemic, lost a unique lease because we couldn’t afford to pay rent. Can’t be replicated elsewhere, so far.”

“Contributed to asphyxiating inflation and a broken supply chain.”

“Lost quite a few clients to Omicron. Sad whenever we lose a patient.”

“Staff sickness has been a big issue and it continues to be a problem. People return to work with less energy and stamina. Production is affected.”

“Just waiting on the next variant to see how quickly things turn bad again.”

“Omicron is decreasing significantly. But it has a lingering effect with people wanting to sell their homes and show them. Some people still aren’t comfortable letting people in yet to see their homes.”

“My indoor retail business continues to struggle, but my outdoor shows are better than ever. One lasting, good effect is that online sales are much improved and continue to increase.”

“Has not had a negative effect on my business.”

“I have a cleaning service and COVID variants increased my business and it’s still going strong.”

“Our IT business has been great since COVID started and it’s still incredible with most people still working from home.”

STATE OF THE SMALL BUSINESS ECONOMY

Wait and See Mode
No Improvement in Customers Returning
Revenues Slide in the Wrong Direction
Inflation Hampers Recovery (Again)
Full Recovery Shifts Beyond Q2 2023

We’ve set our threshold for recovery at the point where 80% of businesses state they have attained levels of monthly revenue matching (or exceeding) what they generated prior to COVID. Last month, business owners were anticipating this to occur in the 2nd quarter of 2023.

But, in this month’s survey, as highlighted below, expectations pushed this date to sometime in the second half of 2023.

So far, only 29% of SMBs have achieved full recovery, which is down 1% from January and 14% from December.

As we’ve said many times, recovery happens when businesses are open, customers and revenues return to pre-COVID levels, 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?

We had a setback with regard to businesses being fully reopened this past month with what looks like a shift from fully open to partially open, offering a different level of products or services.

What we’re hoping to see is businesses reporting fully reopened status climbing back towards the 80% level soon – ideally in April or May.

Some of this might mirror what we saw last year in February/March, as some companies scaled back for a month or two to gear up for a big spring/summer push.

But as the data stands right now, there has been a decline of fully open SMBs from 78% in December, downshifting to 73% in January, and now dropping another 5% to 68%.

So, here’s hoping that downward trend stops quickly, and we have better news to report next month.

What’s Holding Them Back?

With fewer worries around Omicron, business owners are most concerned about ongoing challenges related to inflation and access to the supplies they need to run their businesses. Fears of cash running out and government reclosures have all but dissipated. And customers being afraid to return has declined significantly, as well.

Here are the Greatest Recovery Concerns over time

These quotes from business owners tell us how rising costs and access to resources are impacting business owners across North America. Some are benefiting from high inflation (including retirement planners), some are finding new ways around the obstacles, and others are falling further behind or giving up completely.

“Investors on Wall Street are buying property and raising rents, so small businesses go out of business.”

“Inflation is the main factor that led to closing my business.”

“Inflation may result in our eventual business demise. We can’t sustain 30% increased construction costs during 2021 with another 15-20% increase forecast for 2022. This rate of increase is unsustainable.”

“Materials are sky-high. It’s not just hurting my business, but it’s also hurting the customer’s wallet.”

“When you can’t afford eggs and milk, you know there’s a problem.”

“I'm more concerned with the corporate greed driving the inflation. Record profits for companies and they continue to raise prices for more profit.”

“Escalating interest rates are affecting first-time home buyers. Party might be over for realtors soon.”

“Native Californian born and raised. Done with it. Time to retire.”

“I’m a new business…and I need funding.”

“We’re fine, but inflation’s killing some of my clients.”

“As a small business owner, I'm highly concerned as customers are turning to Amazon to get what they need faster. Not necessarily quality as they tell me. But they want what they want, when they want it, and I can't give that to them anymore. It's a supply and demand issue with the manufacturer. I'm small potatoes to the manufacturer and the bigger suppliers get first dibs.”

“Concerned about inflation. Had a good 2021, our customers could be short on cash in the coming years, however.”

“We invest in commercial retail real estate, that does very well during inflationary times. Inflation and rising interest rates do affect us, but our investments work as a hedge against it.”

“We are not ‘recovering’ but growing!”

“The more challenges businesses have, the more opportunities I have for my coaching business.”

“Inflation actually helps our business as clients are looking for ways to save – and we have plenty of those to share.”

Are Customers & Revenue Returning?

Customers

Not really. What we’ve been looking for is continued movement down on the left side of the chart with increases on the right.

Overall, the results of this month’s poll showed a slight worsening with customer levels increasing on the far left and reducing on the far right.

This indicates businesses with less than 25% of pre-COVID customer levels increasing, while those at the highest levels saw a decline.

Looking out 30 days, it looks like the hardest-hit businesses remain hopeful for continued recovery as are businesses across the middle of the spectrum. While those at the highest level are not anticipating any improvement.

How About The Money?

In addition to getting customers to return, we need to see their spending levels increase, as well. When looking at this month’s results with regard to revenue levels, we see an even more challenging situation with a significant uptick in businesses generating revenues 25% or less than their pre-COVID levels.

And if you look at the percentages of businesses generating half or less of their pre-COVID monthly revenues, you see something even more disturbing. Totaling those numbers, 42% of small business owners achieved 50% or less of their pre-COVID revenues this past month. Revenue levels haven’t been that low since November 2021.

When Can We Claim Mission Accomplished?

As mentioned in our opening, our internal level where we feel confident saying “Mission Accomplished” is 80% and this past month, we saw this date shift out by at least a quarter with business owners now anticipating this occurring in the second half of 2023. Given the revenue numbers we just reviewed, we’re naturally disappointed, but not surprised.

It’s clearly different by industry. But many still have a long, long way to go.

As this chart below shows, our deep dive into the data pinpoints which sectors are farther along in their recoveries, and which ones are struggling the most.

Finance still tops the list with 48% of small business owners in that industry saying they’ve fully recovered (though they suffered a 4% dip from January, and an 8% dip from December).

As tax preparation starts to kick into full gear for the rest of Q1 and part of Q2, let’s hope at least the finance number climbs quickly and doesn’t continue to descend.

Before we move on from this chart, there are a few more categories that deserve special attention.

On the negative side, real estate agents, who were largely successful in dodging COVID-era financial problems, are now facing a 12% decline in their recovery.

Based on many quotes from realtors, inventory is very low across several regions, and worries are high that as interest rates increase, fewer people will splurge on homes.

We will need to watch if these fears continue to become reality for our realtors.

The 5% dip in the recovery of small construction companies is largely attributable to the ongoing supply chain crisis and the massive price increases of everything from lumber to metal to appliances.

Of course, as the construction sector struggles with new home building, realtors will suffer right along with them as inventory problems grow.

Transportation & Travel Tumble A Bit, But Spas Soar

Now, let’s look at transportation and travel. Soaring gas prices can help explain why transportation dipped by 7%, and why the percentage of fully recovered travel/lodging businesses also decreased by 8%.

No doubt fewer leisurely road trips are occurring as gas prices continue to climb.

Shifting gears to the most positive move on this chart, spas/massage therapists made a massive jump forward, with 44% of small businesses in that category claiming they’ve fully recovered.

That must have occurred as consumers’ worries declined about Omicron – and their desire to try to relax with a massage or spa visit won the day.

There’s some real promise hovering around that number, but we’ll have to watch closely next month to see if that category continues to improve.

A Restaurant Rebound? Well, A Small One

Also, there was a 3% increase in the percentage of restaurants that say they’ve fully recovered.

We sure hope that’s part of a larger, ongoing trend, especially as more outdoor dining opens up in the spring. (Supporting that 3% jump, we also saw improvement in the percentage of restaurants that were able to pay their rent on time this past month, too, which was up by 11%).

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 small business owners up at night.

“Rising interest rates are my primary concern. That is about the one thing that would be expected to slow down the real estate market and the inspection industry. As a house inspector, I would be affected.”

“Our volume is off due to lack of inventory in the real estate market.”

“I’m in real estate and now that there is no more government support for renters, evictions are at an all-time high and foreclosures are greatly increasing, as well. It appears we are headed into a worse time than 2008.”

“High rents have resulted from long-term inflation. Housing’s too expensive for my workers to afford, which makes hiring even harder.”

“Still can’t find workers for my restaurant. We are still on shorter hours -- not enough help. That means I still can’t make the money I need to make.”

“The loss of business workers in the Financial District of downtown San Francisco is impacting our retail location. Plus inflation hurts customer buying power and that hurts all retailers.”

“I'm DONE.”

“The supply chain’s still the biggest issue and I can’t get the supplies to make my products.”

“Inflation is going to hit us even harder. Gas prices are going to be an issue because they hurt everyone – from people who own motels, to Uber drivers, to the entire trucking industry.”

“Things are not looking good. Everything is going up and we must raise our prices, as well. Customers resent it.”

“We need help with everything! Gaining customers, our financial reserves are already gone, inflation has caused difficulty among customers who can’t afford our products, and government is playing God.”

“Everything is looking very bad for the future in Canada at this point in time.”

“Our event venue is barely hanging on. Luckily, our restaurant downstairs is able to float us.”

“People are worried about spending money on my services, because they don't know what’s coming next.”

“We went entirely digital and we’re doing just fine.”

“We expect to increase revenues by 5% in 2022.”

“We’ve been lucky in the renovation business so far. It’s been busy.”

“The home furnishings industry has benefited at the expense of travel and hospitality.”

“We maintained our business because of our hard work and planning. National leadership failed us greatly.”

“Our business is at an all-time high in growth in every area.”

“We are professional counselors and our business has soared due to the increased need for counseling.”

“We’re a 21st-century consulting practice and virtual enterprise. We’re blasting forward.”

“We are experiencing the greatest boom in our kitchen renovation business that I have seen in my nearly fifty years in business.”

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, 91% of businesses are reporting inventory and supplies costing more than pre-COVID levels with 39% indicating their costs were more than 25% higher. These figures are representing a significant increase from last month (91% vs. 78%, and 39% vs. 27%).

Passing Costs Along to Customers

This month, we saw our first significant increase in business owners being able to pass along a greater percentage of their price increases to customers.

Previously, 51% of businesses indicated they were able to pass along some of their cost increases to customers and this month that number grew to 63%. And the percentage of businesses able to increase prices 25% or more grew from 9% to 13%.

The ability to pass elevated costs along to customers is the primary way businesses are able to maintain operating margins and generate the cash needed to recover. So, this is a very positive development from our perspective.

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 (65%) of businesses surveyed this month indicated they were finding it difficult to find and hire employees – that’s up 5% from our last poll.

And 43% of businesses indicated they were facing significant challenges, which represents an increase over the previous month, where 38% indicated the challenge was significant. Unfortunately, this labor shortage is far from being resolved.

Adding to the struggles of small business employers, the number reporting that they’re paying higher wages jumped from 60% to 71%.

In their own words, many of our poll-takers complained about the labor shortage, saying it’s getting worse yet again – for a variety of reasons.

“We will raise our prices to combat inflation and cover higher wages required to keep employees. But it’s still hard to find all the help we need. The labor shortage is real.”

“Finding workers who want to work for wages we offer is part of the problem. But the other is a crisis in housing – no inventory near us, and no rentals, either. And when something opens up, it’s too expensive for a lot of workers to afford.”

“Rents are too high now in our area; that prevents us from hiring staff.”

“Workers can’t find affordable housing near our store.”

“It’s much more difficult to find staff than it’s ever been.”

“Workers have been spoiled by stimulus checks and the big companies enticing them with all kinds of benefits and higher pay scales that smaller businesses cannot afford to give. So, we cannot find as many workers at the right price! Not sure what to do now.”

So Where Do We Go From Here?

Summing everything up, there are a few silver linings we’ve uncovered through our deep data dives this month.

But many of the challenges we’ve had now for months appear to be mounting a new round of attacks against small business owners, even as Omicron fades into the background.

So 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

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 [email protected].