Many small businesses still suffer despite rally

Over 45% of San Francisco’s small businesses remain closed despite an improving economy and California’s reopening, according to a new city report.

The rate has been flat from March to early June, even as coronavirus cases fell sharply and business restrictions were completely lifted. The city lags California, which had 40.8% of small businesses closed.

“I definitely see a lot of forlease signs. A lot of businesses closed and stayed closed,” said Maryo Mogannam, president of the San Francisco Council of District Merchants Associations, which represents small business owners. Some owners have considered reopening, but felt the risk of failing in a few months wasn’t worth it, he said.

Ted Egan, the city’s chief economist, said the stubbornly high rate of closures was surprising, but he expects it to improve next month. The data comes from anonymized payment and payroll figures compiled by nonprofit Opportunity Insights.

In contrast, credit and debit card spending has also returned to prepandemic levels in San Francisco, suggesting that residents are spending more on online shopping or other

leisure activities rather than at local stores, Egan said.

“Amazon, the online world, really exacerbated it,” Mogannam said. “Retailers are dying. Restaurants have done better.”

Quieter streets, along with a spike in some crimes such as burglaries, could dampen the return of residents and visitors. Small business closures are “a major challenge for the city going forward,” Egan said.

Other economic data underscored that the city has a long, uncertain road to full recovery. Employment is still down around 10% from prepandemic levels, with most losses in the hospitality, arts and restaurant industries, Egan said.

There are signs of life in the tourism sector, the city’s biggest industry. Hotel occupancy has doubled since February to around 35%, still far below the 80% prepandemic average. Room rates are up around a third since February.

San Francisco International Airport passenger boardings rose 50% since February but were only around 30% of prepandemic levels in the spring. BART ridership in downtown San Francisco is only 12% of prepandemic levels, though Bay Bridge traffic has fully recovered.

The business closure data wasn’t separated by neighborhood, but previous sales tax data shows that downtown had lost the most consumer spending, and numerous stores remain closed.

“Downtown has basically borne the brunt of the shutdown because there is such a reliance on tourists and commuters,” Egan said.

The report doesn’t include any policy recommendations, but supervisors are exploring waiving some fees for small businesses and Mayor London Breed has called for faster permitting.

But the costs of opening a business can easily reach six figures, including paying for permits, rent, hiring employees and building out a store, Mogannam said.

“Kind of like death by a thousand cuts,” he said. “But in San Francisco, I’d say you only need 250 cuts.”