Shutdown decimates business
Lehigh Valley restaurants, retail and leisure hit hardest by closures
It was April when Andy Lee realized his Taps Tavern in Lower Saucon Township probably wouldn’t survive the coronavirus pandemic.
The restaurant with 60 taps had, like so many other businesses, temporarily closed in mid-March. Situated off the highway, making it difficult to pop in and out of for takeout, the restaurant also struggled to get enough employees back to work. The building was leased, which presented its own expenses at a time when revenue dried up.
Still, Lee hoped for the best, waiting to see when Taps could reopen. By late May, time ran out and the shutdown took its toll, forcing Lee to permanently close Taps and focus on ensuring the survival of his other restaurant, Braveheart Highland Pub in Hellertown.
“I had to make the decision not to worry about two at the same time,” said Lee, noting Taps’ closure cost 30 people their jobs, though some have been brought into the mix at Braveheart. “It was very difficult.”
The decision with which Lee wrestled for a month mirrors choices being made across the Lehigh Valley and the country. Small business owners, especially those in hospitality, continue to weigh whether it makes sense to absorb additional expense to adapt to ever-changing restrictions or whether it’s time to call it quits, given the uncertainty of when the pandemic will loosen its grip.
Data from crowdsourcing review website Yelp shows the early economic toll on the area, though the true number of business closures almost certainly is higher.
Between March 1 and July 10, 283 businesses in the Allen
town-Bethlehem-Easton metro area listed on Yelp were marked as temporarily or permanently closed. As of July 10, 183 were marked as permanently closed.
Yelp did not provide a local closure breakdown by sector, but its methodology examines closures across restaurants, stores, bars and nightlife, beauty and fitness, and other categories.
Yelp also does not provide the total number of businesses listed on its website in each area, but it definitely does not cover the full 14,000 businesses across the Lehigh Valley.
Local economist Kamran Afshar keeps tabs on the gamut. And while he doesn’t yet have data on business closures in the Lehigh Valley, he said it would be good news if the total was only 183. He hopes next week to release his latest Lehigh Valley Business Sentiment Index, a survey that asks businesses about their prior six months and whether they’ve hired or laid off workers, among other questions.
While many businesses have been hit hard during the pandemic, local economic development officials also have been quick to point out the diversity of the Lehigh Valley economy, which is not overly reliant on any one industry. For example, all the retail upheaval in the pandemic means the Lehigh Valley’s stock of fulfillment centers are busy and hiring. The manufacturing, logistics and fulfillment sectors prevalent in the area remain strong, said Don Cunningham, president and CEO of the Lehigh Valley Economic Development Corp.
“The biggest concern in the region is we’ve made tremendous progress on our downtowns, nightlife, visitation assets, and the virus has brought most of that to a standstill,” he said. “The worry is when will that come back.”
At this point, most businesses able to reopen have done so, but Gov. Tom Wolf on July 15 announced new restrictions targeting bars, restaurants, breweries and wineries to stem the spread of the coronavirus as cases surged in certain parts of Pennsylvania. The restrictions, among other things, limited indoor dining at restaurants to 25% capacity, down from 50%.
Under those limitations, Pennsylvania Restaurant & Lodging Association President and CEO John Longstreet told state lawmakers Tuesday that 7,500 restaurants in the state could close — a “disaster of epic proportions.”
Around the same time as Wolf ’s new restrictions, national confidence in a small business recovery was sputtering due to growing concerns over a second wave of the pandemic, according to a poll of small business owners taken July 9-16 and released Wednesday by the U.S. Chamber of Commerce and MetLife.
While the survey left room for cautious optimism, given that 55% of owners said their businesses were in good health, cash flow remains an issue for many and about two-thirds said they were concerned about having to close again — or stay closed — if a second wave of COVID-19 hits.
“The survey indicates small businesses have reached stable, but significantly lower perceptions of their health and of the health of the wider economy compared to before the pandemic began,” Tom Sullivan, U.S. Chamber vice president of small business policy, said in a news release. “It’s a long road to recovery. Their cash flow concerns, in particular, indicate many small businesses still face serious challenges meeting their monthly expenses like payroll, utilities and rent.”
Federal help
The Paycheck Protection Program, a broad federal aid package intended to help businesses rehire or retain workers by offering loans that can be forgiven if companies maintain salaries and meet other requirements, was used by many businesses in the Lehigh Valley to stay afloat, at least early on in the pandemic.
Data released July 6 shows about 1,300 approved loans of at least $150,000 for organizations in Lehigh or Northampton counties. Roughly 7,500 loans locally were for less than $150,000.
Some small businesses, however, hesitated applying or were unable to land a loan, according to the U.S. Chamber/MetLife survey. It noted 19% of small business respondents applied for and received a PPP loan, while 9% applied but didn’t receive it, and 11% tried to apply but were unsuccessful.
Of those that received a PPP loan, 64% were concerned about meeting the criteria for loan forgiveness.
At Ritz Barbecue in Allentown, longtime owners Jeff and Grace Stinner didn’t apply for loans or PPP, not looking to take on debt as they neared retirement. As it was, the couple, in their mid-60s, had been trying to sell the business for about a year before the pandemic.
“I didn’t feel right taking money if I wasn’t sure we were going to open again,” Jeff Stinner said.
The Ritz, a nearly century-old eatery on the Allentown Fairgrounds property, never did reopen, closing for good at the end of June after going on a temporary hiatus in mid-March. With no revenue coming in and expenses piling up, the Stinners, who have owned the Ritz since 1981, couldn’t keep the business afloat while hoping for a buyer to emerge.
So they said goodbye to 40 mostly part-time employees and the familiar faces of longtime customers.
The process to find a buyer has since ended, and the property’s owner, the Lehigh County
Agricultural Society, has taken over the site and is considering several proposals for the building, confirmed Agricultural Society spokesperson Jessica Ciecwisz.
“We were open through inflation, recessions, a couple wars,” Stinner said of the restaurant that dates to the late 1920s. “The Ritz was open through the Great Depression, and nothing ever stopped us — but this did.”
It has stopped many businesses, especially those that were fighting to survive before the pandemic.
Nationally, the number of once-temporary closures becoming permanent continues to rise.
As of July 10, there were roughly 132,500 total U.S. business closures on Yelp, a drop from 140,000 on June 15 as more businesses reopened. As that figure fell, however, permanent business closures increased to almost 73,000 nationwide. That means permanent closures now account for 55% of all closed businesses on Yelp since March 1, an increase from June when 41% of all closures were permanent.
Among the most affected business categories: restaurants; shopping and retail; beauty and spas; bars and nightlife; and fitness.
While the pandemic did accelerate closure dates for some businesses, many also pivoted to changing consumer habits, such as restaurants adapting to online ordering as they grew their takeout businesses, said Jeff Barber, president of Lehigh Financial Group in Allentown.
Lehigh Financial Group, which specializes in Small Business Administration commercial lending, works with a variety of businesses, from restaurants to manufacturers, helping to arrange financing as companies expand, make acquisitions or need liquidity. While the initial rollout of PPP was rocky — Lehigh Financial Group hit its busiest point in 20 years — Barber said the program eventually got smoother and he expects the SBA to unveil additional funding that will help small businesses.
Barber feels the Lehigh Valley economy is far from dead, with business plans still going forward.
“It’ll be interesting to see what the next 12 months will hold,” he said. “I feel businesses will come back.”
Retail, hotels struggling, too
In retail, the pandemic has taken the already evolving industry and accelerated the change.
Online sales are increasingly taking a larger slice of the overall pie as many brick-and-mortar doors shut for a couple of months. When retail stores reopened, many saw an initial surge in pent-up demand that quickly leveled out, said Neil Stern, senior partner at Chicago retail consulting firm McMillanDoolittle.
Now there’s less retail demand as people are either not working or not traveling, hitting categories like apparel hard.
“We’re going to have lower demand because we have a huge amount of people out of work,” Stern said.
Grocery, he said, has been an exception, maintaining doubledigit sales increases as people have not fully returned to visiting restaurants.
As for how many retail closures the country could see this year, Stern pointed to projections released in June by Coresight Research. Coresight expects to see as many as 25,000 U.S. retail stores permanently close in 2020, which would easily eclipse last year’s record of around 9,300 closures.
That kind of national research looks at the large retail chains, and the ones filing for bankruptcy and rapidly shrinking to adapt to current and future consumer demand. The closures often trickle out in communities across the country, such as GNC recently closing two Lehigh Valley stores or the ever-contracting holding company of Sears and Kmart that is closing the area’s final Kmart, in Walnutport, later this year.
Hotels also have been among the most affected businesses.
Many local hotels received PPP loans, which helped them stay afloat and retain workers, said Alex Michaels, president and CEO of Discover Lehigh Valley. The hotels are still struggling — extended-stay hotels are doing the best as temporary housing for displaced people or those moving from one spot to another. But the numbers show Lehigh Valley hotels are outperforming those in other regions, which Michaels takes as a sign that people are more comfortably traveling regionally right now than to the big cities.
The reported occupancy rate for Lehigh Valley hotels in June was 52%, which was down from 80% a year earlier but easily outpaced the 28% figure seen in Philadelphia and the 36% rate in the Poconos, Michaels said. With those kinds of numbers, Michaels is optimistic the Lehigh Valley could recover quicker than other markets, but he knows that more pain lies ahead.
“When this all started for us in March, we thought by July we could see an upswing in business and salvage the summer,” Michaels said. “But now we’re kind of thinking this could be another six months before they get a vaccine. Until we get a vaccine, I think we’ll be struggling.”
A glance at the state’s collection of layoff notices in recent months shows the effect on hotels across the state, with many, especially in Philadelphia and Pittsburgh, giving a headsup of layoffs that could last well into the fall.
‘Fighting for our lives’
When the pandemic started, restaurant owner Lee had no debt, two restaurants and about 65 employees.
Now he has several loans, one restaurant and a payroll of nearly 20 workers.
Lee received a $70,000 PPP loan for Taps, for which he now worries he’ll be on the hook, with the restaurant permanently closed.
Lee said he got $300,000 in loans to keep Braveheart going, which included a forgivable $100,000 PPP loan, along with low-interest loans from the state and SBA. To adapt when only outdoor dining was permitted, Braveheart added a $45,000 covered deck with ceiling fans, where it can seat 22 people with social distancing.
In recent months, other business owners have reported dipping into their personal savings or retirement accounts to keep their operations afloat.
Business at Braveheart had picked up slowly: 35% of its normal business in March reached 60% in June, which was trending toward 75% in July. Since indoor dining was restricted to 25%, however, Lee said business is moving downward again.
For some restaurants, it can be tough to make it at 100% normal capacity, Lee noted.
“If you’re a very good restaurant and you have no debt, you own your property, you pay your vendors, you might make 12 to 15 pennies on the dollar,” he said.
But with debt, that portion could slip to seven or eight pennies, which gets whittled with each adaptation — the expense of masks, gloves, sanitizer, paper menus, setting up for takeout. Meanwhile, revenue might be 50% or less than normal levels.
Lee thinks Braveheart will be fine for awhile, having developed a good following in its 13-year history. But it won’t be easy, and it will now take longer for the 56-year-old to retire.
“We’re fighting for our lives,” he said. “From a restaurant perspective, we’re getting hammered.”