Confessions of an Entrepreneur: Where Do We Go From Here?
May 27, 2020 | By Mark Zweig
As I write this, we have been on self-imposed lockdown for about two months – minimizing contact with anyone and maintaining social distancing as much as possible.
Businesses are starting to open up again here. We quickly shopped at three different stores yesterday to buy things we “needed” (was that pesto from Sam’s Club and my favorite bourbon really necessary?).
Each time I put on the mask that my wife made me (she made 20 of them in a sitting one day), I felt like we were going in to rob the place. Vehicle traffic was visibly heavier than it has been for some time. People are definitely poking their heads up out of their holes and looking around. We are all sick of the lockdown.
But will life really return to normal any time soon? I think not.
As an entrepreneur and business owner, it’s hard to know where we go from here. Yet, the ability to accurately predict the future is essential to our ability to first survive, and second, succeed.
I do my best to stay informed and tuned into the external environment. Here is my present day assessment of the situation:
- Unemployment will hit 25-30% in the next 4-6 weeks and after that, slowly start to come back down.
- Travel and leisure and restaurants are the hardest-hit sectors.
- Prices for essentials are going up.
- Prices for luxury goods are going down.
- Real estate – for now – seems unaffected.
- Office space is up in the air.
- Higher education institutions are in a tizzy.
- We could have a resurgence of the virus.
The implications of this are wide-ranging. Many people will not have the money to spend on things that are non-essential. That will slow the recovery for certain businesses.
It will be some time before business returns to usual there. I would guess a couple of years in some cases. It has been said that perhaps as many as half of the restaurants in business prior to the virus crisis won’t reopen.
That prediction doesn’t shock me. Unless their business was already primarily a carry-out or drive-through operation before the shutdown occurred, I can’t see how these thinly capitalized, marginally profitable sit-down restaurants with the overhead they carry can survive on one-third capacity and no bar service.
Air travel will be a long time recovering. It is currently down 95%. People are using Zoom or driving when they have to go somewhere as gas is cheap and the perception is that it is safer.
I just read an article that said certain grocery items went up more in price in the last month than they have at any time over the past 50 years. Whether it is supply and demand or price gouging on the part of manufacturers and retailers driving these increases, it doesn’t matter. Prices for some things we all need are going up.
They are going up a lot in some cases. It could affect people’s future consumption of meat, for example, for some time.
A good example is used luxury cars. In the past month we bought two low mileage used BMWs from our local dealer for prices that had to be 15-20% less than they would have been a few months ago.
One of them we paid less than 30% of new sticker price for that had only 24,000 miles. Late model used cars aren’t selling when manufacturers are selling new ones with warranties at zero percent interest and no payments for 90-120 days.
Used luxury cars are just one example. I would bet that now is also a great time to buy certain types of jewelry and other things we may want but can live without.
I can’t see how this situation will last long. If landlords have unemployed tenants who aren’t paying their rent, or commercial tenants who aren’t open for business or operating at 30% capacity and not making their rent payments, the landlords will be unable at some point to make their mortgage payments.
Commercial real estate value is based on the income the property generates – not replacement cost or comps. Prices will fall and foreclosures will go way up. I am advising everyone I know not to buy investment properties right now but rather to wait for a year or two.
I say that reluctantly as someone who owns a business that has about $6 million in income-generating properties currently for sale.
It’s hard to know exactly what will happen with office space. On the one hand, so many office workers and their employers have learned that they can work from home. That will reduce demand.
However, the businesses these people work for – because of their ability to function remotely during this crisis – are probably some of the least impacted by the virus.
On top of it, when people do return to the office, they will need more space – not less – to promote proper physical distancing. So maybe those two factors cancel each other and demand will remain unaffected.
It’s hard to say.
We don’t know what will happen with demand come fall. On the one hand, we were already seeing a decline in the numbers of high school grads which will reduce the size of our incoming classes. On top of it, with the social distancing requirements and fear of virus resurgence, some people may decide to sit out a semester.
On the other hand, when unemployment goes up and the job market softens, more people decide to either stay in school or go back to school to make themselves more employable.
On top of that, with all the new distance learning courses and options available, it is easier than ever for people to make progress toward their degrees no matter where they are and that opens up a big potential market for what higher education institutions do.
With all the people we saw yesterday in stores not wearing masks, including employees who has masks but weren’t wearing them over their mouths and noses, and what the medical experts are telling us, it seems likely to me that there could be a large increases in cases and this whole thing could start over again.
If that happens, I doubt things will again shut down – at least here. But demand will be down as many people will once again be afraid to leave their homes.
So what does come next? You tell me!