In late March 2020, art supplier Hobby Lobby was suddenly faced with immense backlash due to their decision to operate their business normally. [1]Under usual conditions, such a decision would be unspoken, but the conditions of everyday life are now under an immense threat. COVID-19 has led to a nationwide lockdown and the closure of all “nonessential businesses.” The art supply store, which has nearly 900 locations and employs over 40,000 people, is no stranger to controversy. In the 2014 Supreme Court case Burwell vs. Hobby Lobby, Hobby Lobby argued that it would not comply with the new healthcare law which stated that corporations had to provide its employees with healthcare insurance that would cover emergency contraceptives. The reason behind this was also the reason why Hobby Lobby remained open—the privately owned business is very religious. In an internal memo circulated on Twitter, owner David Green claimed that his wife Barbara Green had a vision from God telling her that everything was in his hands and that they serve a God who will guide them through the storm. Following intense backlash from the public, Hobby Lobby officially closed its doors on April 3rd, furloughing thousands of employees.
Hobby Lobby continued to defend their decision by arguing that they were an essential business because it provided materials to make face masks and sold education supplies to parents who were now forced to teach their children at home. While many have concluded that Hobby Lobby was in the wrong, it brings up a deeper question. What exactly qualifies as an essential business? Policies outlining such are mandated state-by-state, and thus a business could be forced to close in one state while it could remain open just across the border.[2] The economic impacts of these decisions are immense. This means that the business will continue to receive an inflow of revenue if allowed to remain open, which changes the chances of the business staying afloat drastically. As states start to tentatively reopen in a manner that prioritizes “more essential” businesses, this question becomes more important than ever.[3]
Earlier in the pandemic, some retailers interpreted the rules differently.[3]Like Hobby Lobby, Arts and Crafts store Michaels remained open with the same argument. Guitar Center continued to allow customers to test instruments in-person and kept many of the locations open. Sears stayed open to provide “essential products and services during this crisis.” Most of these companies had faced high levels of debt before the pandemic and all have faced backlash because of their decisions to stay open during the early stages of quarantine. Much of this confusion was due to flexibility in policy and declarations from the government. Depending on where you are located, the meaning of which businesses are considered “essential” differs considerably. All policies agree that supermarkets, big-box stores, healthcare facilities, pharmacies, and the businesses that help one operate through everyday life such as trash collectors are to remain open. There’s commonalities in businesses that are deemed nonessential as well, such as theaters, gyms and spas, museums, and sporting/concert venues to name a few.[4]However, there are many businesses for which the categorization varies: restaurants and bars, liquor stores, unessential industrial manufacturing, construction, labor unions, marijuana dispensaries, gun stores, and home office supply stores. These businesses make up a large part of the United States economy, so this variability is concerning.
Different states have different opinions on how aggressive their policy should be. Policy even varies city-by-city. The Bay Area initially deemed construction essential, continuing the building of many office buildings and housing developments.[5]However, they soon shut down those construction projects and changed their decision. However, in Los Angeles it was a different story, as many construction sites remained in operation. Currently there is national attention on a similar issue, pertaining to a different industry, guns. Many states and towns have closed gun stores, but Bass Pro Shops has fought to stay open, only closing approximately one third of its 150 retailers.[6]The situation is unprecedented, with legislation that seems to change every hour, and Bass Pro Shops is not the only gun store that has fought to stay open. In fact, the entire industry has.
The National Rifle Association found itself yet again in the center of controversy when it sued New York state.[7]Governor Cuomo classified gun stores as nonessential and the NRA fired back by claiming that he has “effectively and indefinitely suspended a key component of the Second Amendment to the United States Constitution.” [8]In the weeks of the pandemic, firearms sales have soared despite numerous states closing gun supply stores. Lawsuits like the NRA’s are very common with gun rights advocates filing lawsuits in Pennsylvania to block Governor Tom Wolf’s orders and a federal lawsuit challenging New Jersey Governor Phil Murphy’s mandate. [9]Obviously gun stores are fighting to stay open wherever they can and be classified as an essential business, but is the label even profitable right now? We are in the first stages or a recession and many of the currently open businesses are struggling.
The stock market has dropped immensely and is incredibly volatile, but there are many factors which are affecting the economy. [10]Global supply chains are being disrupted due to the initial outbreak in China and thousands of American workers are applying for unemployment. Over 99% of businesses in the US are small businesses, and they account for about 50% of the workforce. A majority of them cannot sustain a month-long halt in business. Furthermore, the threat of a possible “startup depression,” in which new companies cannot enter the job market, looms on the horizon. Businesses that are open are also struggling to keep their doors open, not only because of changing policy, but a lack of revenue. The restaurant and bar industry has been hit hard by the virus. Although they are labeled as essential, they are limited to take-out or delivery only.
This major hindrance of revenue has led to the National Restaurant Association to write to congress asking for revised load restrictions so restaurants can spend 50% or more of the loans on non-payroll expenses, a large increase from the current 25%. [11]There are very realistic fears that many local restaurants could close due to failure to renegotiate rent with landlords. [12]Many industry experts state that upon the return to normalcy, restaurants will have a similar desperation for money seen from new startups. Additionally, the chain of lost revenue goes further back. Farmers are destroying millions of pounds of perishable fresh food due to a lack of customers in the corporate sector. [13]Despite an increase in supermarket sales as millions of Americans are eating at home instead of out, it is not enough to make up for a lack of sales from restaurants and schools. Many farmers are reporting donations to local food pantries which have seen a huge jump in demand, but even then there is only a limited amount of food each charity can store. Dairy Farmers of America estimate that farmers are dumping as many as 3.7 million gallons of milk a day. One chicken processor reported that they are smashing 750,000 unhatched eggs every week.
Many restaurants are relying much more heavily on delivery sales, and most are using food delivery services to do so. [14]Doordash, Ubereats, Grubhub and Postmates have seen a huge jump in unique users and usually charge restaurants a 20-30% commission fee per sale. However, this heavy margin has made it difficult for many small businesses to turn a profit, an issue that stems from before the pandemic. This concern has been elevated in light of the pandemic and many food delivery services are decreasing or waiving some fees to help restaurants. San Francisco officially capped the commission fee to 15% in an effort to support local restaurants. Restaurants in San Francisco have always faced a high turnover rate in the highly competitive market but San Francisco bar owner Ben Bleimans stated that he believed about half of bars and restaurants are facing “existential destruction.”
However, not all industries are seeing a decline. As stated previously, food delivery apps have seen a surge in new users and through frequent promotions, have seen a steady flow of revenue. As their stocks rise, some consider that this indicates a permanent shift in how Americans consume food. [15]With many new users, it only seems logical to assume that some will stay after states reopen. Grocery stores have also seen a huge increase in customers, an 83% rise in March from the year-ago period. [16]While the S&P 500 was experiencing an unprecedented decline, Sprouts Farmers Market, Weis Markets, Grocery Outlet Holdings and Kroger saw their stocks go up by 16.3%, 11.8%, 8.5%, and 7.07% respectively. [17]This is a sign of a bear market, when investors all shift towards industries deemed as safe, and right now that is grocery stores. This large increase in sales, while most likely the highest in March due to panic-buying, will continue until a return to normalcy.
While some businesses are sustaining, even thriving during the COVID-19 pandemic, many others are struggling to stay afloat and countless more will fail. Being classified as an essential business is by no means a guarantee for survival, but in a world where the only other alternative is to close and furlough all potential revenue, it makes sense why businesses are so desperate to stay open. The current macroeconomic events indicate the beginnings of a recession which could continue to threaten businesses even after the pandemic is over. Economists at McKinsey forecasted nine outcomes which they feel cover the scope of possibilities ranging from an optimistic and swift summer recovery to a “black swan of black swans” which could completely change the structure of the country as the virus spreads uninhibited until a vaccine is introduced. [18]This would lead to economic chaos, ineffective policy, and suffocating credit lifelines.
The world is looking for solutions incase of a worst-case scenario, and in early April, the Pope wrote in his Easter letter that “this may be the time to consider a universal basic wage which would acknowledge and dignify the noble, essential tasks you carry out.”[19]Universal basic wages may seem odd but the idea is not new and already Spain is moving toward a permanent basic income due to COVID-19. The idea was at the forefront of 2020 presidential candidate Andrew Yang’s campaign and brought national attention to the idea, which was then furthered due to the national stimulus package. No matter what happens in the coming months, COVID-19 has drastically changed the economic landscape and will continue to do so. Businesses everywhere desperately trying to find ways to sustain themselves and the effects of the pandemic will be felt for years to come. The path ahead is tough, but the one thing that drives people toward the next day has and always will be: hope for a better tomorrow.