Alignable: Road to Recovery Report (November 2021)

Hey Washington: Fix the Broken Supply Chain

• Supply Chain Impact Worsens
• 73% of SMBs Still Haven’t Recovered (A New High)
• Inflation, Inflation, Inflation
• COVID Impact Remains the Same
• Customer Counts & Revenue are Flat

Table of Contents

• COVID’s Current Impact on Small Business Recovery
• Reopening Status
• Customers and Revenue
• Operating and Employee Costs
• Alignable Research Center and Poll Demographics

Overview

The one message small business owners would like legislators to hear loud and clear: “Fix the Supply Chain Problem… Now!”

This month’s report features data collected from 3,430 business owners from 10/30/21 to 11/9/21, along with historical data from over 655,000 responses collected since March 2020. We’re passionate about tracking how the Coronavirus Crisis has impacted the Small Businesses Economy across the United States and Canada, because we believe locally owned businesses are the backbone of the global economy.

For more details about our research, including the methodology behind our polls, please contact Chuck Casto at chuck@alignable.com.

SMALL BUSINESS RECOVERY STALLS 

• Significant Negative Impact Remains at 33%
• 63% of Businesses are Still Experiencing Some Negative Impact
• Anticipated “Full Recovery” Date Shifts Out Even More

Business owner sentiment this past month was basically more of the same – with some ups and downs. We saw slight improvements in the percentage of businesses who felt that COVID’s impact was on the decline. But at the same time, we saw a slight decline in businesses saying it was not impacting their businesses. 

Overall 63% of business owners report still feeling some negative impact on their businesses from the COVID crisis with 33% stating the impact is still very significant. 

Small business recovery experiences reflect two extremes once again, with more people noting that they’re in worse shape than they’ve been, while some are having their best year ever. Here’s the latest from Main Street across the U.S. and Canada.

“I had to take a full-time job because my Reiki business was slaughtered by COVID.”

“It’s harder to run a business now than before COVID, because the costs of everything are higher. And my sales still need to get better.”

“The supply chain is a joke, inflation is out of control, and now they want to raise taxes! Does Washington know what’s really going on?”

“SBA loan money is helping me keep my doors open.”

“I’m working multiple jobs, plus running my business to keep the money coming in.”

“Changed my business to make it work, but had to get a part-time job to pay more of my bills.”

“My cash flow has not improved, still waiting for business to get better.”

“Barely hanging on.”

“My cash reserves are gone. Working off of my retirement to deal with increasing expenses and to keep the business afloat.”

“Seems boating is high on the priority list of recreational time, so my business is up.”

“Many people in both of my industries – being a financial advisor and tuning pianos – have shut down their businesses. That has helped me greatly now.”

“Remote, safe, small vacation rentals are now very popular, so my business is better now than it has ever been.”

STATE OF THE SMALL BUSINESS ECONOMY 

• Fully Open Businesses Decline
• Inflation Overpowers all other Concerns
• Customers & Revenue Numbers are Flat

Small business recovery happens when businesses are open, customers and revenues return to pre-COVID levels, and business margins return to levels which enable a business to sustain itself without outside relief or support. So how are we are doing across that basic formula? Worse this month than last.

Are Businesses Open?

This month’s data showed a reversal of the slight improvement we saw last month with 67% of businesses reporting being fully reopen in contrast to last month’s 70%.

In October, we were hoping to see that number climb north of 80% before year’s end.  

But given this month’s setback, it seems that breaking the 70% barrier again might be all we can hope for in 2021. 

What’s Most Concerning?

In a word… Inflation (again). But this month, we’ve hit an all-time high. When asked directly if they’re afraid inflation will impair their recovery, 90% of small businesses said yes – and 48% noted that they’re “highly concerned.”

The broken supply chain is now the single greatest challenge business owners face when it comes to their financial recovery.  The challenges have been well documented by others in the media. The question that remains is why our leaders in Washington are unwilling to do anything more than wave their hands in the air to try and solve it. 

Are they unwilling or unable or both? 

• Unwilling because the source of the problem is fundamentally in the hands of the state of California and the unions who support the current administration?
• Unable because the only way they know how to solve problems is to regulate within the U.S. and deploy military abroad? 
• Perhaps they should task FEMA to solve this challenge, since FEMA seems to be the only domestic resource capable of supplying resources for post-disaster situations.
• In any case, this challenge requires real leadership from both sides of the aisle and neither seems interested in doing their jobs. (Many of poll-takers echoed our frustration with Washington’s policymakers).

As you can see in the chart below, inflation/the cost of supplies increasing blows all other concerns away for the second month in a row.

These quotes from business owners tell us what’s really going on out there and amplify members’ frustrations about inflation, the rising cost of supplies, and related supply chain issues. 

“I run a car dealership, but I can’t get any vehicles to sell.”

“The supply chain is not functioning. We have long waits for parts, etc.”

“Politicians need to focus on relieving supply chain problems instead of the rest of the stuff they’re worried about.”

“All costs are going through the roof.”

“I’m beyond highly concerned. The current situation falls under one of three possibilities: complete ineptitude, intentional sabotage, or outright treason. All of these possibilities should be punished.”

“Shipping costs from China have increased five-fold from pre-Corona costs. Domestic shipping is also a major factor, in that there are not enough drivers to handle the freights. Therefore, these costs have also increased exponentially.”

“Our company closed down. Could no longer continue.”

“Inflation is a serious danger to the economy, and that will affect us all.”

“Before COVID, it would take us only 5 to 7 days to receive products we ordered. Now there are 90-day delays.”

“We’re quite worried, because my business invests in properties. And we are being priced out.”

“If interest rates rise as in 1978-79, no one will be buying houses. That’s a big fear.”

“Inflation is hitting our clients dramatically, though it increases our business, because we create programs that protect clients from inflation.”

Are Customers Returning? 

Customers

Last month, we proclaimed: “One month does not make a trend.” This month, we are proving ourselves to be on point with that remark as improvements from last month were eroded and poll-takers’ customer outlook softened, as well.     

This chart highlights the percentage of businesses operating at various levels of their pre-COVID customer counts. Accordingly, what we are looking for is continued movement down on the left side of the chart with increases on the right. 

As you can see, we saw deterioration in the improvements we saw last month with a rise on the left and a decline on the far right.  

Looking out 30 days, prospects also aren’t great for the holiday season — with another rise on the far left and a decline on the far right. 

Show Me The Money (Please!)

Customers coming through the door is a critical first step; however, getting them to open their wallets and spend at levels on par with pre-COVID levels is what matters most. 

Here, too, we’re looking for an ongoing shift from the left to the right, but, unfortunately, we’re seeing the opposite.

There was a lift among those who said their monthly revenue is less than 25% of what it was prior to COVID, and a significant decrease in the people saying it was over 90% of what they earned prior to the crisis. 

As things stand right now, 42% of small businesses say they have half or less of the monthly revenue they generated before the crisis (that’s up 2% from last month).

We still hope to see some improvement as the holiday shopping season kicks into high gear. However, at this time, it seems like we will be stuck in wait and see mode to see if the supply chain opens up enough to help these businesses move closer to recovery. 

When Can We Claim Mission Accomplished?

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

What we do know is during each of the past 6 months that we’ve been tracking recovery predictions, the prospects have continued to shift out signaling a longer overall recovery period. 

Right now, only 27% of businesses are currently reporting they are at or above pre-COVID revenue levels.  (That’s 8% worse than the 35% we reported in July and 3% worse compared to October).

In my mind, Mission Accomplished status requires us to get to the point where at least 80% of businesses report being at or above pre-COVID revenues. 

Back in June, business owner sentiment had that happening sometime in mid-2022. But now, as you can see below, business owners themselves are forecasting that they won’t be fully recovered until some point in 2023. 

Digging more deeply into the data about who has yet to rebound – focusing on key industries and groups – you can see why the predictions for a full recovery keep getting later and later.

The average percentage of those still trying to recover is already staggering at 73% (and that’s the worst it has been in six months).  

What Industries Are Most At-Risk?

But some industries and groups are suffering even more: 93% of beauty salons, 90% of event planners and nonprofits, 82% of massage therapists, 81% of transportation businesses, and 80% of pros in the travel/lodging or restaurant industries.

And construction companies/general contractors, as well as retailers aren’t far behind with 76% of their small business owners still trying to crawl back to pre-COVID revenue levels.

The ongoing labor shortage, the broken supply chain, inflationary prices of goods and supplies – gas, lumber, metal and more – are all causing problems, not to mention cutting into the budgets and spending habits of consumers.

Anything that curbs consumer spending around the holidays truly impairs the ability of retailers, restaurants, travel agents and the owners of hotels and bed and breakfasts, to recover.

In fact, another Alignable poll conducted among 5,443 small businesses from 9/25/21 to 11/9/21, showed that 33% of restaurants and 26% of retailers say they are at risk of closing for good by the end of Q4 if sales don’t improve substantially soon.

And take a look at some of the industries that are better off than the average. Some of them are not doing as well as one would expect, either.

Real estate has been booming for at least a year in many regions, but now house prices are off the charts and inventories are depleting. That’s because new home construction has stalled in some places due to supply chain issues.

Even lawyers and accountants are feeling some inflationary pains – and many of them ranked with realtors as the least-affected small business owners during the worst days of COVID.

How are Minority-Owned Businesses Recovering?

Then you can see from the chart below, that minority-owned businesses are at a disadvantage yet again. We saw this in the early days of COVID and during the PPP funding eras. And it’s like we’ve traveled back in time with this latest data, showing that 85% of minorities say they still haven’t recovered.

Consistently, our veterans have been ahead of the curve in past studies and reports, so it’s particularly alarming to see they’re among the business owners who, now, are having a lot of trouble recovering (at 77%). 

And the women-owned businesses at 76% is another sad part of this story, as they often have struggled more than others throughout the past 21 months.

So what does this all mean?

We’re starting to see that inflation is, indeed, a more formidable foe for different groups and industries than COVID even was – as if the aftershock of the earthquake has dealt an extra blow pushing the recoveries of many businesses backwards.

Here are some comments from our poll-takers reflecting ongoing struggles with customers and revenues returning, while a few give us some silver lining moments, as they’re enjoying a spike in business.

“We’re closed until May 2022.”

“Just trying to revive the business amidst many obstacles, mainly created by the government. The rich get richer with no issues, while the poor get poorer with plenty of road blocks and no chance for ever recovering.”

“We need help! We’re consumer trade show promoters. We suffered 100% revenue loss for 15 months with mandated closures for our business, as everyone wanted us to ‘avoid large indoor gatherings!’ We were left out of any kind of federal funding.”

“The #$%#%^&! feds did nothing to give us any help and we supply the government with drug-sniffing dogs, search & rescue dogs, bomb-sniffing dogs, service dogs and COVID-19 dogs for human patrolling. Our business is hurting.”

“I’m attempting to establish a new client base.”

“Because of the nature of my business and the new variant, I'm not seeing a lot of massage clients.”

“Before COVID-19, we were open 7 days a week. Since reopening, we’ve been open either 4, 5, or 6 days because of low staffing. Revenues are down because of that.”

“Sales are flat.”

“We’re fully open and attempting to offer the same products and service. But we’re dependent on vendor supply, time frame, and supplier price increases! We also have less work, and less money to invest in our business.”

“Construction is up here, and margins have been okay. However, labor shortages and material costs have made it much more difficult, which offsets the increased sales.”

“As a director, actor, and writer I worked on Zoom. Since May, I’ve been back on the live stage. Have a show opening in February.”

“Our festival was canceled in 2020, but was open and a success in 2021. However, we had no Canadian or European visitors.”

The Bottom Line

The COVID Crisis has been like a 21-month hurricane for many business owners. 

In many consumer businesses, in particular, recovery means getting their businesses back to a sustainable business model -- one where the revenues coming in cover the costs of running the business (also known as their operating margin).

This 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 

Last month, 85% of business owners have told us that the cost of their supplies and inventory have increased in comparison to pre-COVID levels.  This month that number rose to 89%.  In the past month, businesses reporting costs increasing by more than 25% grew from 29% to 34%.

Here’s this month’s distribution:

Passing Costs Along to Customers

As you can see by comparing the above chart with the one below, business owners have not been able to fully pass along these costs to customers. While 89% are paying more for supplies they can get, only 53% are passing some of those costs onto their customers. This highlights one of the major contributors to operating margin squeezes being felt by these businesses.

Employee Costs

Hiring continues to be a challenge for the majority of small business employers. This first chart shows how 66% of business owners are finding it hard to hire help, and 43% say it’s significantly more difficult. 

Couple the challenge in finding employees with the increased costs for each new hire and you can see how rising employee costs are also impacting operating margins for these businesses and hampering their ability to recover.  Here you can see the distribution for the 65% of business owners reporting higher labor costs.

Our poll-takers had a lot to add to the conversation around hiring, which has been a major problem now for at least the past seven months. Here are just a few of their comments:

“Still can’t get staff. Think they’re still scared of the virus or don’t want to work in a restaurant. That cuts back on my revenues, forces customers to wait longer – or go somewhere else.”

“Labor costs are much higher today than before COVID.”

“Can’t find employees – I need more!”

“We’re highly affected by supply issues, inflation, and labor shortages.”

“It’s hard to get employees who actually want to work. Too many government handouts.”

“Staffing is my No. 1 concern.”

“We’re still having trouble with employee acquisition and retention.”

“My daughter and I are running this cafe without receiving any pay. We are working to pay our expenses only.  We can’t afford to hire anyone.”

As always, we hope you are finding our ongoing research helpful in understanding the challenges facing small business owners not only here, but across the globe.

We encourage everyone when making a purchasing decision to think about spending money with a local business owner first. Your local merchants need you more than ever and they’re working hard to make their stores safe, while boosting your shopping enjoyment.  #OneMainStreet

To see other polls we’ve conducted since March 2020, please go to the Alignable Research Center.

ABOUT THE ALIGNABLE RESEARCH CENTER 

Alignable is the largest online referral network for small businesses with over 6.5 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 chuck@alignable.com.