It’s clear that the pandemic has precipitated a gargantuan shift in how consumers prefer to transact for goods and services, and has forced traditional, brick-and-mortar SMB businesses to accommodate those changes. The shift to online commerce has been confirmed by the media, the economic data, the earnings reports of publicly traded companies, as well as our own behavior. Online consumer purchasing has become the preferred mode of commerce for the consumer, and consequently, a necessary mode of commerce for traditional, brick-and-mortar SMBs.
I find the innovative adaptations of these SMBs inspiring. I live in a state where only “essential” brick-and-mortar SMB businesses continue to operate with a semblance of pre-pandemic normalcy. I call it quasi-normal: consumers are permitted to shop and transact on-premise, but under highly restrictive constraints such as one-way-only aisles, social distancing, mandatory mask wearing, use of credit or debit only (no hard currency), and limited per-item purchases. However, as the nation continues to push towards “re-opening” the economy, it’s becoming more evident that the quasi-normal, on-premise shopping experience is about as good as it’s going to get for the foreseeable future; that what we once thought of as “normal” on-premise commerce won’t be returning any time soon.
In response to these challenges, brick-and-mortar SMBs are leveraging pure ecommerce, and online-to-offline (“O2O”) commerce. In many ways this is very exciting to witness. But lost in much of the excitement surrounding this boon to ecommerce and O2O remains legitimate questions regarding the real prospects for the long-term economic viability of traditional, brick-and-mortar SMBs. In particular, even as both pure ecommerce and online-to-offline has thrown traditional, retail SMBs a lifeline to economically viability, is it sustainable?
It’s great that many traditional, brick-and-mortar SMBs have been able to quickly pivot to Shopify and Square to capture online traffic, and monetize this traffic to keep their businesses afloat. Also, at the macro-level, they’ve received tailwinds from the implementation of the SBA’s PPP program, and rent and mortgage forbearance provided by the CARES Act and state governments. These programs, combined, have bought retail SMBs much needed time to switch to online commerce, and the economics to pay for it. These are great developments…for now.
The question going forward, though, is the continued viability of brick-and-mortar businesses, even for those that have successfully leveraged ecommerce and stood-up online storefronts. Realistically, what’s the pathway forward if we make these assumptions, which I believe are reasonably conservative?
- PPP stimulus, even if forgiven, will end
- Rents, mortgages, utilities (overhead) will have to be paid
- Logistical capabilities of retail SMBs will never approach the efficiencies of the Amazons and Walmarts of the world
- Supply-chain constraints will continue for all businesses
Taken at face value, how can traditional brick-and-mortar businesses be competitive? How can they survive a prolonged downtrend in overall sales? Frankly, it’s hard to have an optimistic outlook. The economic viability of retail SMBs only works if (a) there’s a sustained, incremental increase in consumer demand extending beyond essential purchases, and/or (b) there’s a natural lift in on-premise, physical store activity with the easing of lockdown regulations, which when combined with new online sales, restores, or at the very least approximates, former top-line sales numbers.
Ecommerce and O2O have thrown a lifeline to traditional, retail SMBs, but their extended viability may be short-lived. If we assume macro-economic (demand) conditions stay remain status quo, government-backed fiscal support for both consumers and small businesses sunset, and operating overhead gets trued-up, the additional revenue captured from online sales still won’t be sufficient for all retail SMBs to remain viable.
It’s a waiting game for now. Brick-and-mortar retail SMBs must remain vigilant in procuring quality economic data, taking advantage of government support, and staying the course with whatever they can capture from ecommerce and O2O channels.
Adam T. Hark is Managing Director of Wellesley Hills Financial. With 15+ years of consulting in payments technology, SaaS, and fintech, Adam advises clients on growth, exits, and market positioning strategies. Adam can be reached at ath@wellesleyhillsfinancial.com.
