The impact of COVID-19 on small and medium businesses

The pandemic has engulfed a major part of 2020. The world started going into lockdown around the month of March and small and medium businesses across the world were the segment that has been affected the most. The industries that have evidently been affected include – real estate & construction, hotel, restaurant, and transportation. As the world ventures into a new year, here is a look at the pandemic’s effect on small businesses.

1)     Fewer footfalls in physical retail stores – Retail stores that only have a physical presence have been severely affected as the world went into lockdown. Many of the mom & pop stores around the world had to shut down or temporarily close as their only/main source of revenue was generated through customer footfalls. A survey conducted by PNAS in April, of 5,800 small businesses in USA, saw that   43% of these businesses had to shut down or temporarily shut down due to Covid 19. 

2)     Greater importance to online services – While physical stores and experiences were greatly impacted, the pandemic has proved extremely beneficial to businesses who offer products and services online. E-commerce websites, Edu-Tech, food, and last mile delivery apps saw a rise in the number of new and active users which translated to a spike in their revenue during this pandemic. Many of the businesses were forced to setup an online presence and generate revenue through this medium.

3)     Cutting down on costs – Companies across the world began cutting down on costs by letting go of their employees and their offices as work-from-home has become the new norm. This year has witnessed 20 million jobs being shed in April in the USA, 7.2 million people have applied for emergency unemployment assistance in Canada; Europe and Asia have also seen an increase in unemployment rates as compared to the previous year.

4)     Impact on start-up funding – According to a survey conducted by FCCI and Indian Angel Network of 27 investors that were involved with 250 start-ups and 34 incubators, 59% of the investors preferred to work on the start-ups they already invested in until the situation improves rather than investing in new ventures. Many start-ups from around the world had to shut down operations this year as they did not have sufficient funding to keep things going.

5)     Impact on the real estate market – The pandemic has seen a unique impact on the real estate market. With companies giving up their office space to implement work-from-home, the commercial real estate market has been declining and the value of commercial properties has seen a large decrease. On the other hand, the residential real estate market has seen a positive trend as individuals are spending more time at home. Families are seen to require larger houses with an additional room that are now being used as an office space or where the children can attend their online classes.

6)     Lean vs Traditional – This pandemic has shown that companies that are able to quickly change their strategy and get their employees streamlined with the new way of doing things, to be more successful in handling such a crisis. Traditional methods of business, and companies who found it difficult to quickly adapt to the changing business environment were left behind.

7)     Gaming industry – During the pandemic, the gaming sector saw a huge spike in new users. With more free time to spare, individuals have taken to online games as one of their primary sources of entertainment. A survey conducted by Deloitte showed that 40% of millennials and Gen Z listing video games as one of their top 3 favourite entertainment activities. Twitch - which is a live-streaming video game platform saw a 101% increase in hours watched as compared to the previous year. The gaming industry is definitely booming and is expected to be the next big thing.

8)     Increased safety and hygiene measures implemented by companies – Since the lockdown in countries across the world have begun to ease up, companies have started implementing safety and hygiene measures to protect not only their own employees but their clients and customers as well. Implementation of such measures invariably have increased the costs for the businesses. Customers have begun to favour businesses who implement such practices, and it seems that these safety measures are here to stay for the foreseeable future.

Businesses that have adapted to and pivoted their traditional methods to accommodate the pandemic, have been able to successfully survive these testing times. Even companies that have sufficient resources in terms of capital and network have survived. Companies that were unable to adapt to these changes are now looking to sell their businesses at attractive valuations. This will inevitably lead to mass consolidations across all industries.