(Air date: June 17, 2020)
COVID-19 has impacted businesses differently. Some are flourishing during this time while others are trying to figure out how to keep the doors open. These challenges also look different for new business owners compared to those looking at retirement.
Join a conversation with Brigid Tuck and Neil Linscheid as they discuss the impacts of COVID-19 on retail and the implications for business succession.
In this special series, we are looking back on webinars and articles shared early during the pandemic and how that information needs to shift for our current reality.
"Our business owners are being tested in ways they’ve never been tested before."
— Brigid Tuck
- Christy Kallevig, Extension educator
- View Brigid and Neil’s webinar from April 14 to get more insights and ideas on economic considerations during COVID-19.
- Use the Community Vitality page as your go-to resource for help in your community work.
- Discover a variety of resources from University of Minnesota Extension to help you during these challenging times.
Read this episode's conversation below.
Note: Our Vital Connections On Air episodes are audio-based interviews. Written transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio before referencing content in print.
Christy Kallevig: Hello, this is Christy Kallevig, host of Vital Connections On Air. We have been experiencing some really difficult things in the last few months, and we know that there are more challenges ahead.
At the Center for Community Vitality, we have been working to bring topics and partners together through webinars and articles since the end of March to get you the information that you need. Now, I'm going back to those educators and asking them for updates and insights on what we should be doing in our current context. I'm sharing small parts from these long conversations over the next several weeks so that we can listen, reconnect with ideas and hopefully take the next small steps.
Here's part of my conversation with Brigid Tuck, senior economic analyst and Neil Linscheid, community economics educator, as our discussion shifted to COVID-19 impacts on retail and business succession.
Neil Linscheid: One of the things that I think is important to remember about so many of the economic models that that are out there and that we rely upon is that it's an assumption of things will be mostly like they were yesterday. And we just know that things aren't going to be like they were yesterday or two months ago or three months ago.
And we see that major businesses are finding new ways to do business. They're finding new ways to get the things done that they need to, with people working virtually. They're finding new products that they are being asked to create.
And all of those things have impacts on other businesses as well. Other supply chains are being impacted in when we want to look at those things in the webinar, Brigid talked about the production function, and that's just an idea of like, what does it look like to run a business. How much do you spend on toilet paper for your offices? How much do you spend on electricity? And who do you purchase those things from?
Well, we know those things will be different and I don't, I don't think we just know enough yet on how different those will be. And we won't know for quite some time what that will look like. So if we thought that our data was inadequate before this, now, I think we're all saying, we really are at a disadvantage of understanding all the rapid changes that have happened across the entire economy.
The other thing that I think is important, especially on the retail side, is there is still some stability that's out there. Like people still need to eat. They still make purchases. They still are purchasing food for them[selves] from the grocery store. They still would like to purchase things from restaurants if they could. And there, there is some spending that still has to happen and is essential.
In our small communities, coming back to those essentials isn't the worst thing, because those small businesses that provide services like a hardware store or your local grocery store. When people don't want to leave they're able to capture more of that market.
So I guess the message there is, well … our estimates of how big our retail market really is, are probably not going to change all that much, but our estimates of where people make those purchases, will they make them locally, or will they drive the 60 miles to the nearest regional center? Those are the things that are really, I think, being questioned right now and being reassessed.
Christy Kallevig: Do we have any idea how much people are still going out and spending?
Brigid Tuck: I think that's where the lag in the data just doesn’t help us right now. Because our retail sales data and stuff lags by a year, usually before we in Extension get it. But even for the statewide level, I'm not sure that anyone has that yet.
Neil Linscheid: There is some information I haven't looked at it in a while, so I don't want to get to specifics on it, but there's a company that will provide information on credit card sales. And I think it was the University of Kentucky, our counterparts in Kentucky, [who] did some mining of that kind of information to show how the retail sales slowdown has happened and what kind of things it was affecting.
So there are people that do know, like a credit card company would know about that. And individual businesses would know if their sales have gone down on the retail side and, you know, in Minnesota, there's so many businesses that are closed. We have to assume in some categories that if it was 10% of what it was, that would be a blessing when your business has been closed for number of months.
Brigid Tuck: Right. And I think I saw it to your point about kind of the necessities. Like I saw that Target’s sales were sky high, or record highs in this quarter, but their profits were down because some of the things that the bigger profit margins, like clothing and things like that, people are buying less of, but people were still buying necessary day-to-day supplies. So there's online sales particularly. I do think kind of one thing that I hear in this conversation too, is just that uncertainty.
Consumer spending is something around two thirds of our economy driven by consumer spending. And so as consumers kind of figure out how this is playing out, I think there are some of us that even if we still have [a job], you know, there's the unemployed and if they haven’t had unemployment insurance, right Neil, but at the same time, there are people that you know, perhaps you and I can fall in this category.
We still have our jobs. The university is looking at, you know, we may have some changes coming or people's companies may be doing all right now, but looking at cost saving measures that would include, you know, impacts back on employees. So consumers may be kind of pulling back in their shells a little bit on some of this, you know, extra credit spending, if you will. And then as we become more comfortable with what's happening, hopefully consumer spending will increase as folks sort of understand how their job situation is going to be.
Neil LInscheid: There's some other things that I think are there out there, and we don't always recognize them. There was a paper that just came out recently from our friends in Iowa that looked at retail churn. So the difference between business starts and business exits and what they were interested in was, how big a factor is this?
And one thought is, if there are a lot of firm exits, there’s a lot of churn. People that want to start a business, we'll look at that and say, I see this as a real opportunity. If I start a business [and] it goes well, I might sell it. And someone else will be around to buy it. That's a good thing. And for many of our small communities, things don't turn that much. There's not that big of a transition in ownership and some of our other work on business succession.
And looking at that at the community level is really to just help make those people that want to sell their business comfortably and do that in an effective way, so that the next generation of business owners can come along. And I'll tell you, I think it's hard work to do that. Now is an historic … it seems a historic number of businesses exiting the market. So we have to ask, is that an opportunity? It's a sad opportunity, but it might be something that new business owners or people will want to start new businesses are considering and saying, “Hey, we could make a go at this.”
Christy Kallevig: You guys have been doing a lot of work around business transition, the silver tsunami as you termed it, and that type of thing. Will this accelerate that?
Neil Linscheid: I don't know. I mean, it's hard to predict. Here's the things that I'll be watching. I think we'll be watching for if people were on the edge of retirement and [if] they had a retirement account, how badly was that depleted and difficult? Maybe it delays their decision to sell that they need to actually keep this business going longer. And their calculus on their ability to retire is different. Some of those businesses right now, I think we’ll be watching how many ended up not coming back. They won't be able to reopen. It's a sizable number. I'm guessing that not every business that closes now, even with the support programs, will come back.
And we know that we'll probably just continue to see stories in the news on a regular basis about businesses that did not decide to come back. But again, even though those businesses may not be able to come back and reopen and be successful, it doesn't mean that the markets for some of the goods and services that they provide are entirely gone. But if it's a deeper recession, those markets could be significantly reduced. People's willingness and interest in spending on restaurants on retail, shopping that isn’t food could be diminished. But I just don't know if anybody knows that yet. What do you think, Brigid?
Brigid Tuck: Well, I agree with what you're saying. I think the other thing that our business owners are perhaps being tested in ways they've never been tested before. I mean, you look at even with what happened in the recession of 2009 is very different from the way this is playing out. And so I hear anecdotally quite a bit that business owners are really trying to figure out how do we deploy our assets in the best way. So, you know, they may have qualified for one of these programs, protectors [such as] this payroll protection program that a lot of businesses have taken advantage of.
But the question is do we use that to play our employees? Do we hold on to that money in case we need it in another three or four weeks, do we pay rent? I mean, they are making some of the toughest decisions. So even an experienced business owner to get to the business succession piece, no, they're making some decisions that they maybe even if they've owned a business for 30 years, haven't had to face before.
And so I think it's a little unprecedented in the fact that some of the most savvy business owners, may they find themselves not really sure how to proceed, even in the face of having that experience. What do you think, Neil, have you kind of heard that too?
Neil Linscheid: Yeah, I have heard from people in my network, just again, stories and anecdotes about those really successful business owners that haven't had to take out a loan in 20 years now having to do that and, you know, the changes and difficulty that that's causing for them to have to consider the ramifications of doing that. There's also an interesting thing that I would like to watch more and I'd like to see how it plays out.
There might be a situation where capital is available. Loans might be available for you, but if you're looking at your business and you're not sure where it's going to go, there might be people that say, even though I could take out a loan, I won't, even though I qualify. I don't want to do this because I'm just not sure how that will affect my financial future in the long run. And so that, I think that's a really difficult situation that I'm sure we'll see features of. I don't know how widespread it will be.
Brigid Tuck: I was just going to add to your list of things to watch Neil with this business succession too, is I wonder in our kind of Greater Minnesota, especially small communities about ownership of space, you know … we don't necessarily have a lot of malls and places where people are renting space or maybe a higher level of a business owner owning a space. So I'm kind of curious to see when we see about these forgiveness programs and all that kind of stuff.
It seems like the biggest issue with businesses is paying rent. And if they own the building, do you think that's going to change the outcome? If you've owned a business for 30 years and you own that building outright, you don't have rent to pay as opposed to a new business owner who maybe just bought the building and has a mortgage to make a payment. So I think that would be a very interesting to me to see how that plays out.
Christy Kallevig: You mean, the opportunity to take risks differently if you own your space compared to if you're just getting started?
Neil Linscheid: And sometimes those, those really fundamental things that they can be the most instructive about what's going on in your community and can help you identify places where we might need to be more creative as a community and supporting this business or finding any way to help them through it is understanding. Well, owning versus renting may make a difference right now. Like what's the best thing you could do not wait for a study to tell you that, but go and ask your business owners how big those factors are. What's really getting in their way?
Christy Kallevig: Thank you so much to Brigid Tuck and Neil Linscheid for joining me for this conversation, please make sure to visit the University of Minnesota Extension Center for Community Vitality webpage at extension.umn.edu/community-development, where you will find more resources on economics in Minnesota and your community, as well as all of the recordings of the webinars and articles that we're releasing during this COVID time.
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Reviewed in 2020