WASHINGTON (AP) — When the coronavirus struck the United States hard last month, 22-year-old entrepreneur David Zamarin knew his company needed a Plan B — fast. As the economy essentially shut down, demand for his stain-resistant coatings was sure to drop.
So Zamarin decided to retool his company, DetraPel, in Framingham, Massachusetts, to start making disinfectants to help fight the virus’s spread. Within weeks, “we completely changed our whole system.”
Sales of the DetraPel ecoCleaner & Disinfectant have been strong, he said, and Zamarin expects to produce the cleaner even after the health crisis has passed.
“I don’t want this to be a one-time thing,’’ he said. “I don’t want to capitalize on this to make short-term money.’’
The COVID-19 pandemic has been an epic catastrophe for American business. Economic life is all but frozen. Stores are idle. Sales have sunk as people isolate at home, slash spending on autos and appliances and halt shopping trips, restaurant meals and movie outings.
Many iconic retailers are reeling. Gap warns it may run out of cash. Neiman Marcus and J.C. Penney could be headed for bankruptcy protection.
Yet by dint of circumstance, resourcefulness or just plain luck, some companies have positioned themselves to withstand, even thrive, in the crisis. The most fortunate work in sectors mostly shielded from damage, like pharmacies. Or they can capitalize on the quirks of the times — a spike in demand for groceries, pizza delivery, movie streaming, online packages and cleaning products.
Some companies were prudent enough to have built financial cushions or credit lines to access cash. And then there are nimble ones like DetraPel that somehow find opportunity in the chaos.
“This is a once-in-a-lifetime — we hope — event,’’ said Andrew Corbett of Babson College’s Butler Institute for Free Enterprise through Entrepreneurship. “The people who are used to dealing with ambiguity and trying new things — they’re going to embrace this and run with it.’’
Corbett pointed to Bauer, a sports equipment maker that has pivoted from making visors for hockey helmets to producing medical visors for health care workers fighting the outbreak. That kind of drastic reversal is beyond the reach of most companies.
“It’s hard to change your business model,” said Gregg Lemos-Stein, who studies corporate analytics at S&P Global Ratings. “It’s like trying to change your tires while the car is going 100 miles an hour.’’
For most companies, the key to survival is maintaining enough cash to stay afloat until the economy begins to grind back to health. Some businesses, Lemos-Stein said, have drained their credit lines to try to withstand a period of plunging revenue.
“Cash is king,” Robert Kaplan of Harvard Business School said in a video seminar on the coronavirus’ threat to companies. “Preserve what you have and grab more cash wherever you can to help you get through and survive the crisis.’’
United Airlines is trying to raise $1 billion by issuing stock. Darden Restaurants, owner of Olive Garden and other chain restaurants, is seeking $400 million in a stock offering.
The government has intervened to provide small businesses with loans they don’t have to repay if they use most of the money to keep workers on the payroll. The Federal Reserve poured money into financial markets to ensure that companies can maintain access to vital short-term credit for everyday operations.
But government money goes only so far for a company whose business has collapsed.
“It doesn’t put people back on planes or back in the malls,” S&P’s Lemos-Stein said.
“I haven’t talked to a CEO yet who thinks the government is going to be their savior,” said Rich Lesser, CEO of the Boston Consulting Group.
Even while the health crisis has crushed purchases for most goods and services, it’s ignited consumers’ appetite for other offerings. Netflix is capitalizing on a burst of demand for streaming entertainment. Amazon’s stock is up on a surge in online shopping. Clorox is benefiting from panic buying for cleaning supplies. Zoom and other video conference services have filled a rising need of employees working from home.
The data firm Womply found that grocery stores enjoyed a 40% increase in revenue earlier this month from a year ago. Also seeing surges: Gun shops (120%) and liquor stores (60%).
Still, millions of businesses have at least temporarily closed, Womply found: 71% of shoe stores, 77% of thrift shops and 68% of antique dealers. Forty-two percent of restaurants have shuttered. Those that have a brisk takeout or delivery service have been likelier to remain open: Only 21% of pizza shops and 17% of chicken wings purveyors have stopped doing business.
“Businesses are reorganizing around curbside (pickup) and takeout,” said Brad Plothow. Womply’s marketing chief.
With widespread shutdowns of malls and stores, the pandemic is putting many clothing retailers further in peril, while increasing the dominance of big box stores that have remained open because they sell essentials like food and household goods. Walmart, Amazon and others are on a hiring spree and doling out bonuses or pay increases.
But even they face pressures. They’re spending more on labor and online operations. Some are seeing profits squeezed because shoppers are turning to low-margin groceries and avoiding higher-margin items like clothing. Amazon has struggled to handle an accelerating demand for essentials, disappointing many of its Prime members, who pay $129 a year and are accustomed to receiving deliveries within two days.
The crisis risks intensifying what many regard as a troubling trend: Commerce increasingly concentrated among big companies as smaller firms fail, thereby reducing competition.
The Open Markets Institute, which campaigns against monopolies, has called for a ban on acquisitions by companies with annual revenue above $100 million or by large investment firms. Lynn Barry, the institute’s executive director, notes that many big companies swallowed up smaller rivals in the financial crisis and Great Recession, sometimes in deals brokered by the government.
He’s worried about a repeat:
“You’ve got Apple and Google and Amazon with these massive piles of cash, the Saudis and others with these massive piles of cash, and everyone else is half-bankrupt and paralyzed.’’