Small Business, Big Economic Pain

Amazon Inc. and Walmart Inc. are reaching out to the mom-and-pop set — courting new brands for their massive online marketplaces and looking to prop up the small business sector.

Call it enlightened self interest.

The fashion giants are not just looking to build online scale and promote big shopping events, like the forthcoming Prime Day bonanza. Walmart and Amazon might be big (and have each been accused of suffocating small business), but they’re not big enough to withstand a small business meltdown.

In almost any individual showdown, the giant will win, but taken together it is the small businesses that rule. It’s the little guys who, in so many cases, deliver the paychecks that consumers spend at the big players. Historically, small businesses account for two-thirds of net new jobs and 44 percent of U.S. economic activity.

But it’s an economic engine that’s sputtering with the coronavirus. And while the pandemic pain has been nearly universal, smaller companies are particularly vulnerable.

Trillions of dollars in aid poured out of Washington in the early days of the COVID-19 shutdown. The U.S. Small Business Administration doled out more than $1 trillion itself, including 14 years’ worth of lending in just 14 days at the beginning of the crisis. But that money has dried up now and the so-called Phase 4 stimulus package that was in the works this summer gave way to a particularly messy election cycle.

“This economy and this country is driven so much by small- and medium-sized businesses that we want to see something happen there that will help support those folks,” said Doug McMillon, chief executive officer of Walmart, in August. “I think the larger companies are getting things sorted out, and the government is paying attention to the larger companies that need some sort of financial support. But it’s that small business group that, in particular, I think we all need to keep our eye on and will probably determine just what this economy looks like on the other side of the Phase 4 stimulus.”

That stimulus has still not come.

David French, senior vice president of government relations at the National Retail Federation, said it likely won’t come until February at the earliest, after a new Congress, and maybe a new president, is sworn in.

“It’s very bad news,” French said.

He said smaller retailers navigating the pandemic were receiving indirect support from aid given to consumers, including stimulus checks and extra unemployment benefits that helped many people to continue to buy.

“That indirect stimulus has basically left the system,” French said. “It’s been spent and we’re going into the holiday season with more uncertainty and without any clarity when this additional fiscal stimulus is going to happen.”

He said small retailers also need clarity on exactly when they can reopen and how they can stay open.

“The pandemic has shown the incredible power of the government,” French said. “The government shut down business for weeks at a time.”

The situation has also showed the limitations of that power, French said, pointing to the $3 trillion in stimulus that, in the end, just “bought time.”

“The only way to solve these problems is to keep the economy as open as possible and for the government to show us how we can do it safely,” he said.

Jobs are the fundamental building block of the economy — and while the employment market is strengthening, it still has a long way to go.

Retailers added 142,000 jobs last month to employ 15.2 million, but that still puts industry payrolls 483,000 jobs short of where they were in February. In the overall economy, businesses took on 661,000 workers last month, but that’s still a deficit of 10.7 million jobs compared with February.

About 40 percent of all jobs come from businesses with fewer than 20 employees — which would cover many fashion boutiques.

Employment at apparel and accessories specialty stores stood at 964,200 last month, down by 312,000 since February, while department store employment has largely rebounded, standing at 1.06 million, down just 13,800 during the pandemic.

It is the fashion boutiques that are the lifeblood of many designer businesses.

Gary Wassner, ceo Hilldun Corp., which supports more than 425 brands as a factor, said the cooperation between the brands and stores he works with has generally been good over what has been a very tough period.

“Their reliance on the universe of specialty stores has always been strong and those specialty stores are also small businesses and also privately owned and in many cases they’re owner operated,” Wassner said. “They have been forced to make it work and they have.”

Where there has been conflict, he said, it was between the stores and the landlords and not so much between vendors and stores.

But much of the world is still touch-and-go.

Wassner said a lot of fashion brands are trending down about 30 percent and stores have to be watched closely. “Every credit is questionable today, other than maybe Walmart and TJX and Costco, which you don’t think twice about,” he said, referring to when he approves orders to a retailer as a factor.

So far, the biggest help through the pandemic was the Paycheck Protection Program, which launched in April.

Wassner said many companies he works with received loans from the program to keep people on staff and start to reset for the pandemic.

Now the trick is going to be to get through the next leg of the crisis — and it looks like that will have to happen without any more help from Washington for the time being.

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