Coronavirus Pandemic -You Cannot Go Back To Business As UsualByRaymond D. Matkowsky
It is no secret that Covid-19 has had a tremendous effect on finances and people’s future confidences. Some people believe that the world economies will be back quickly, everyone will have their jobs back and life will go on as before. If you think business will return to what was pre-pandemic “normal,” I believe that you are deluding yourself. Lost time has gone by. You cannot recover lost time. We do not have a time machine that will let us go back to a period before the pandemic. Damage has already been done and there is nothing that we can do about it. It will not be a V-shape recovery. It will not be a U-shape recovery. It will be a slow upward trend. Also, the “flattening of the curve” has not been consistent. There are areas that the virus continues to spread unabated. The pandemic will not be tamed until all areas of the world are virtually virus free.
People are desperate to find sources of cash. A staggering 47.1 million Americans have filed for unemployment insurance. When this is over, most Americans will look to save more than they spend. Prior to the recession that started in 2007 the savings rate was 3.6%. In 2010 it was 7.1%. Americans’ personal savings rate hit a record high in April, 2020 of after tax 33.0%. More savings equals lower sales. Faced with uncertainty people will save more. I suspect the same can said about much of the western world.
Some experts believe that initially we may have an impressive recovery because the economy is recovering from such low levels. “Recovery” doesn’t necessarily mean “recovered.” Do not confuse the two. Look at around and then decide.
Don’t be lulled into believing what some politicians will try to make you believe. If the Gross Domestic Product falls 30% and it recovers 30% in the next quarter, you still did not break even. The GDP is undergoing a recovery, it has not recovered. In order to break even the recovery must be at least 42.9%. Some are predicting the economy will fall by 50%. In this case, you will need to recover 100% in order to break even.
The pandemic of 1918 only took a couple of years, but the Depression of 1930 took ten years to resolve. The Pandemic of 2020 may be somewhere in between. It is time to pick up the pieces and plan for the future.
Regardless of semantics, the initial recovery isn’t expected to last long or reverse the damage to the economy though. The economy may even fall back to previous lows. There is no reason to believe that the effect on economic growth will not last for several years.
According to Morning Consult, consumer confidence is not necessarily impacted by the coronavirus’s local or regional conditions. Rather, national trends appear to have a more significant impact on economic optimism. Take for instance Utah. As of this writing, Utah’s unemployment rate is 10%, the lowest in the nation. They have had about 10,497 cases of Covid-19. They have suffered only 117 fatal cases, again fairly low. Yet, the populations’ consumer confidence is down 27.6%
A Harris poll taken on June 6, 2020 through June 8, 2020 showed that while the U.S. economy is reopening, fear is not subsiding. The latest wave of poll results finds that 52% of respondents fear they could “die as a result of contracting the virus.” This is still near a record high.
If you do not believe in these possibilities, consider all the likely scenarios, do the math for the various scenarios yourself. How long will it take you to break even under each? How much would you normally gain during the time that it takes you to break even? How much profit can you make if you are restricted to 25 to 50% of your pre-pandemic foot traffic? Some people point to pent up demand. However, I have to cautiously wonder whether or not it is just transitory? Whether it is or not is not the point. The point is that you have to plan for the worst case scenario. You have to plan on operating with a much smaller base. Personal spending has declined 13.6% in the first quarter of this year. The second quarter GDP is expected to be worse. Personal spending accounts for 70% of the Gross Domestic Product. You have to plan on operating on a much smaller margin. If none of this comes true you will be way ahead of the game. However, if it becomes true and if you plan for it you will also be ahead of the game.
Before you do get into the game you have to pause and think about whether or not it is feasible get back into your pre-pandemic business. If you reopen, will you make at least enough money to cover your fixed costs like utilities and rent? Many businesses both small and large have run through the numbers and have decided that it just does not make any sense to take on more losses when there is very little prospect of success in a reasonable period of time. Essentially, they have concluded that they would have to start at the beginning building a new business and forego profits for a long time.
It will take massive amounts of capital to start a new business. It will also take a massive amount of capital to resupply an old one. One recent survey of San Francisco restaurant owners said that 60% lose money by reopening.
A significant portion of the world’s population is older people who have a higher risk. Typically, these same people have more disposable income than many. They need to be confident to participate in the economy. Remember, that even a 90% recovery may be significantly less than before.
As I said earlier regional conditions do not appear to necessarily effect people’s confidence. But, you do have to keep in mind the situation at your location. Many of your customers will come from the immediate area. We don’t understand the regional variations very well, but we know that the virus strikes some areas harder than others.
A Factor Of Uniqueness
If your decision is to try and make a go of it, you will need a new business model. It is doubtful that the old one will work. You know that you are going to have a smaller base because during long periods of isolation people change their habits. Because of unemployment people have less money to spend. Because of fear, they do not want to leave their homes that much. You must give them a reason to frequent you. You need to create a factor of uniqueness.
When I think of uniqueness, the first company I think of is Domino’s Pizza. Domino’s Pizza dominated the pizza industry for a long time with their slogan of “30 minutes or it’s free.” It was a level of difficulty that even Domino’s was hard pressed on. However, it brought in more business and it was almost impossible for the competition to match quickly. Nowadays, the technology exists that allows many companies to make fast deliveries. That doesn’t matter to Domino’s. They were the first to do so and have a long lead plus a long list of customers that the competition doesn’t have.
You do not need something that is exclusive. What you need is something that will take the competition time to institute. In the aftermath of the pandemic, your rivals maybe busy with other projects.
Indulging Your Customers
In 1929 a U.S. marketer and now an international business sensed that the economy was headed down. Their problem was “How do they sell a completely unnecessary beverage to a struggling population?” Coca-Cola’s answer was to remind consumers refreshing breaks were important too. Remind people that by refreshing themselves (read: using your product or service) they may be able to solve some of their problems.
Rewards
One of my favorite methods and one that I can attest to as working is a rewards program. This method has been used for a long time. Many companies both large and small offer rewards. Supermarkets used to give away encyclopedias and dinnerware. They still give away merchandise. If you purchase so much, some super markets will give away the fixings for a full family meal. Gas stations would give away hats and drinking glasses. Sports teams give away miniature bats and balls, tee-shirts and free tickets. These give-aways bring people in. There is no limit to what you can give away.
Service
Service is more applicable to a business to business setting, but can also have applications in business to consumer settings. Service makes you the “go to” person for answers to questions. It may not always be in the realm of your expertise, but you can possibly point the person asking to the right party or in the right direction. Each time you help a customer out they will remember your name and company. They will want to keep you happy by buying from you repeatedly.
You could also benefit your community. Sponsor a little league team, scouts, food banks etc. At the very minimum it is free advertising but it also may bring in new customers that want to show their gratitude.
What Are The Economies In Asia Doing to Attract Customers?
The Pandemic of 2020 hit the Asian economies first. They were the first to come out of the calamity. Hopefully, they will not have serious future waves. Since the continent was the first, it might be instructive see how the business situation is handled now.
Asian countries certainly have different cultures from western nations. Asian nations have different cultures among themselves. However, when it comes to misfortunes, humans tend to react in much the same way.
The first thing that stands out is that the vast majority of brick and mortar businesses went to online services. This was not viewed by businesses and customers as an option but a necessity. It would be wise to consider this path because customers appear to be very eager to order by phone or computer.
Very definitely, companies with a good reputation on health and safety including that of their employees are viewed more positively than other businesses. Contactless deliveries are preferred by customers.
Touching cash is considered dirty. People hesitate to handle physical bills and coins. Businesses try to encourage people to use digital forms of payment.
[Publisher’s note- I believe that cash is still king. Certainly in Asia it is. Money has always been contaminated with drugs, bacteria and viruses. The same is true for credit/debit cards. Eventually customers will realize this and revert back to their old ways. Using credit/debit cards present a security issue too. They are more costly to process also. If you go this route you will have to increase your revenue enough to cover the increased costs.]
Yum China is the operator of KFC and Pizza Hut in Asia. Joey Wat, its CEO, says reopening will be slow and cautious for a long time. He is seeing more business at restaurants with wide open spaces and less at those in shopping malls, train stations, and airports. He also says that that the bottom line is to “forget about making money for now this year.” “This year is to build a brand…” “Hopefully we can build a brand that can help shareholders make money for the next 100 years.” Mr. Wat is following the market strategy that is focused on building new relationships in a new climate.
Back To Business
Going back to business is going to be a risky undertaking but one that has to be taken at some time. There is no way to predict what the future will bring. Take it slow! Make necessary changes as you go along. Even if you reopen, many people will not want to take the risk getting themselves or their family sick. You will have to overcome that feeling. You will also have to take into consideration many families will not have much discretionary income. To succeed you will have to stand out from your competition and make people want to patronize you.
If you have any further suggestions, do not keep it to yourself. Help your fellow readers!
If you have any questions, comments or suggestions drop me a line at rdm@datastats.com.
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