Everyone is well aware of the stock market’s crash over the last month. We are well aware of how airlines have been canceling flights, hotels are shutting down, cruise ships have stopped sailing, and even Disney has had to close all of its parks. However, very little discussion has been had about how the COVID-19 pandemic is affecting small businesses. Yes, we are well aware that many states have told restaurants to close their doors and only do carry out and delivery orders. When you walk down the street you’ve probably noticed that the lights are off in salons and barber shops. You’ve probably even seen posts on social media encouraging you to go out and support your local business community in whatever way you can. However, very little has been said about the actual effects on small business from a statistical point of view.
According to the SBA (Small Business Administration), the over 30 million small businesses in the US employee roughly 60 million people, approximately half of the entire workforce. Those are some pretty big numbers that are very difficult to ignore. At the same time, because there are so many small businesses across the US, it is very difficult to collect data on them, especially pertaining to how the COVID-19 pandemic is affecting them. While we don’t have all the answers here at DSA, we have been able to analyze our data a bit to tell you what we have been seeing. Keep in mind, that with everything having changed so quickly, we don’t have a lot of data to work with. While DSA Factors works with a wide range of industries, it is the wholesale and retail sectors that we are most heavily invested in.
While there are many ways for us to measure the impact of the COVID-19 pandemic on small business, much of this data is too new to see any actual changes yet. So the best way to predict the impact seems to be purchase orders. As a factoring company, when one of our clients gets a purchase order from one of their customers, they request a credit approval for that customer. While our clients sell to both large and small businesses, there are two numbers that we could look at to determine who is placing the orders. In general, larger companies place larger orders, so high dollar amounts requested would imply orders from larger companies. However, the number of large companies is relatively small in comparison to the number of small companies, so by counting the number of credit approval requests we receive can help determine how many small businesses are placing the orders.
Under normal market conditions, both of these numbers can fluctuate a bit, but typically by no more than 10% in any given week. The exception to this rule is when there are holidays. Both the week of Memorial Day and Labor Day will see about 20% less business than normal. Business is typically down about 25% during the week of the 4th of July. The weeks around Thanksgiving and New Year’s typically see 40-50% less business than normal, while the week of Christmas can see 50-60% less business. The other big holiday is Chinese New Year, mainly because Chinese factories shut down so importers aren’t able to bring in new inventory for about a month. As a result, business tends to be consistently down about 10% each week during the period around Chinese New Year.
However, there is one more interesting trend that we have found in our data, in general, March is usually our busiest month. Over the last 10 years, March has been our busiest month on 4 occasions. For whatever reason, in the month of March we usually see between 20-25% more business than we do throughout the rest of the year.
While the coronavirus was first discovered in Wuhan, China at the end of December, and first reported in the US on January 20th, our data for January and February seems to be pretty consistent with what we’ve seen in past years. While the stock market started crashing on February 20th, the first week of March, the 1st-7th, appeared to be business as usual according to our data, the number of credit approval requests was average, while the dollar amounts were about 12% above average. Given that March is typically a stronger month, it would suggest that small businesses were starting to struggle a little bit, while larger businesses were doing fine.
The second week of March, the 8th – 14th, was significantly worse. Both the number of credit approval requests and the dollar amounts were down 13%. This is a pretty significant decline given that business is usually up by 20-25% during this time. With both numbers being down, it would imply that both small and large businesses were suffering significantly.
The third week of March, the 15th – 21st, saw even stranger numbers. The number of credit approval requests was down 20%, while the dollar amount was actually up 30%. This would imply that most of these credit approval requests would have been from larger businesses, and that small businesses may have experienced a 50% decline in business.
That brings us to the current week, March 22nd – 28th. The week may not be over yet, but already the numbers look grim. The number of approval requests have dropped a staggering 65%, while the dollar amounts have dropped 35% below normal. This would imply that what little business has been taking place, has mostly been with larger businesses. For small businesses that should normally being having some of their best performances of the year, we estimate their business has dropped by about 88% of what would be considered normal during this time of year. That 88% drop in business mostly pertains to small wholesalers and retailers as that is where the majority of our data comes from.
Sadly, these numbers are probably going to continue to get worse. At the time of writing, according to the New York Times, 21 states, 47 counties, and 14 cities have issued stay-at-home orders which affect roughly 200 million Americans. That puts 61% of Americans under stay-at-home orders, and that number is only going to increase. CNN reported today that a record 3.3 million Americans have filed initial claims for unemployment last week. At the height of the 2008-09 collapse, the most initial unemployment claims in a one week period was only 665,000, while the record for highest number of initial claims occurred in 1982 and was 695,000.
If there is ever a time to support local businesses, now is that time. DSA Factors will continue to report on any trends we see in the small business community throughout this pandemic, please check back regularly for future updates.