The fate of small businesses that have lost revenue and seen bills pile up during the coronavirus shutdown will depend on their ability to seize on “permanently altered” consumer preferences and embrace online technology as the economy reopens, according to a new report from RBC Economics.
“This may seem ambitious, given the immediate challenges of survival that confront many business owners and operators,” says the report, released Wednesday. “But to be unprepared for a very different kind of recovery could be just as costly as the unprecedented collapse.”
The pandemic has led to an emphasis on digital delivery and more domestic procurement, the RBC report says, as businesses have been forced to adjust to curtailed demand and adopt new ways of operating and delivering products.
Dawn Desjardins, deputy chief economist at RBC, said businesses that were able to pivot to cater to consumers largely confined to their homes “have fared somewhat better” than others during the downturn, but many are now faced with the dilemma of creating an operating plan with no guarantee customers will embrace reopening efforts and no clear idea of how long conditions like social distancing will be in place.
“This could be a nine-month thing or it could be a two-year thing,” she said.
The RBC report contains a number of recommendations for firms, business associations and governments, including proposing a program that would help small businesses boost their online channels and another to provide them with safety certifications to allay customers’ fears of returning.
RBC says continued assistance from government will be crucial to the survival of small and medium-sized business, with GDP in some of the hardest-hit sectors expected to remain 25 to 50 per cent below February levels even at the end of this year as recovery takes hold.
On Wednesday, politicians in Ottawa and Ontario said they plan to hold a news conference Thursday to unveil “joint provincial and federal efforts to help small businesses in Ontario access opportunities online.”
To underscore the importance of a healthy small business sector to drive local demand and job creation across the country and the economy, the RBC report’s authors suggest the policy motto driving this particular recovery should be “too small to fail” — in contrast to the “too big to fail” emphasis on stabilizing the financial sector following the 2008 crisis.
To be unprepared for a very different kind of recovery could be just as costly as the unprecedented collapse
Small businesses, which represent 42 per cent of GDP and 48 per cent of new jobs in Canada, are bearing the brunt of economic shutdowns to control the spread of COVID-19, according to the RBC report.
Firms with fewer than 100 employees accounted for nearly 60 per cent of job losses in the first two months of the pandemic — twice the share of job losses they shouldered during the 2008-2009 recession, according to RBC.
In the three years that followed that crisis more than 10 years ago, nearly 20,000 more small businesses closed their doors than had in the prior three years.
While the federal government has stepped up with “unprecedented” amounts of fiscal support for wages, rents and emergency loans this time around, the RBC report says small and medium-size business owners are contending with numerous challenges.
“As consumer behavior shifts, the ability of small businesses to adapt and pivot will be a major determinant of Ontario’s long-term economic recovery,” said Rocco Rossi, chief executive of the Ontario Chamber of Commerce.
There are some success stories of businesses adjusting to selling products online, providing virtual services or even offering entirely new products and services, he said. However, reopening poses serious challenges for others, “especially those with limited capital or for those located in parts of the province with poor or unreliable broadband internet.”
The RBC report recommends a five-year investment in regional tech accelerators, and boosting a 2019 federal budget commitment to high-speed internet for every Canadian and business by 2030, with tax credits available for small firms to invest in Canadian-designed software and hardware to promote digital transactions and services.
It also suggests creating national programs that would help Canadian businesses boost their online channels — with a goal of one million businesses deriving at least 25 per cent of their revenue from online channels by 2025 — and establishing virtual Main Streets and farmers’ markets.
In addition, the report proposes that business groups and governments could launch safety certification for small and medium-size business to encourage customers to return, beginning with hard-hit restaurants, hotels and retail outlets.