These ‘Little Land Mines’ Could Prevent a Summertime Boom
A roaring recovery is in sight, but a lot depends on what Congress does next for the winter economy.
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By Dec. 1, 2020
For the first time since the pandemic shuttered the economy eight months ago, the end is in sight.
There is a distinct possibility that the economy could roar back to full health quickly as soon as public health conditions allow. But for that to happen, the United States will need to make it through what might be a cold, dark winter in which damage could be done to the tissue of the economy that prevents that rapid healing.
With many service businesses having already depleted cash reserves and the government aid they received earlier in the year, another wave of failures looms. And that imperils not only individual shops and restaurants, but also the commercial landlords they pay rent to, and the state and local governments relying on their tax dollars.
The challenge is to keep everything going long enough to prevent irreparable damage to the ecosystem on which a huge share of American economic activity is built — office buildings filled with workers, hotels and airplanes that are full, vibrant street retail, and the public services that maintain it all — when so many individual elements of the ecosystem are under severe strain.
Boka Restaurant Group in Chicago had 2,000 employees working at 20 restaurants before the pandemic, and in the immediate aftermath of shutdowns in March furloughed more than 1,800 of them, said Kevin Boehm, a co-founder of the group.
But as the weather warmed and Chicago allowed extensive outdoor dining, the company’s restaurants were able to claw back. By midsummer, sales were down only 35 percent to 40 percent compared with normal. A refundable loan through the federal government’s Paycheck Protection Program helped meet rent and payroll obligations.
Now, the federal loan is long gone, the weather has turned cold again, and a new wave of Covid-19 infections has put a pall on indoor dining. Sales are down 90 percent from normal levels.
“I’ve spent the last two days sitting in a room with employees who are being furloughed or having a salary reduction,” Mr. Boehm said in mid-November. “This is happening right now. One of our restaurants is one of the highest grossing in America, and last night we did $900 of sales. On a normal night, that restaurant would have done $50,000.”
For restaurants, many expenses move pretty much in line with sales, like ingredient costs and labor. But others, especially rent, do not; in a healthy restaurant, rent would amount to 6 percent to 10 percent of revenue. When revenue collapses but fixed costs do not, as is the case now, a restaurant cannot survive for long. At some of his restaurants, rent is now an untenable 50 percent of sales.
“If there’s no federal assistance, it will wipe out a very large portion of the independent restaurants in America,” said Mr. Boehm, who with dozens of other restaurateurs formed the Independent Restaurant Coalition to seek help from Congress. “We can’t make it to April or May.”
If there are widespread restaurant failures, as the coalition argues is inevitable without a major new federal rescue, it will create an ugly situation next summer. You would simultaneously see hungry diners eager to return to restaurants; vacant former restaurant spaces; unemployed restaurant workers; and restaurant entrepreneurs bankrupted and in no position to start over.
A related challenge could hold the national economy back even after a vaccine is widely available. There has been a slow-moving crisis in some commercial real estate sectors, as missed rent payments start to pile up.
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