The State of Small Business Closures, According to Yelp

Your local news is full of sad stories about your favorite small businesses closing. Even McDonald’s, Pizza Hut, and Starbucks are closing thousands of locations nationwide, and the effect on your city’s favorite restaurants, hardware stores, and bookshops is far worse.

Yelp puts this all in national perspective in their latest Coronavirus Local Economic Impact Report. Yelp is obviously in a good position to know which businesses are open and which are closed at any given moment, so they measure that statistic for a raw number of how many businesses have closed under COVID-19. But they also measure online review interest, as measured by a business’s Yelp searches, clicks, reviews, and photos posted to the platform.

The March and April data showed that about 175,000 businesses on Yelp nationwide had closed during the outbreak, but the May and June data promisingly showed that only 140,000 were closed. In other words, previously closed businesses were reopening again. “More than 20% of businesses closed in April have reopened,” Yelp said at the end of June.

But then the  PPP loan money ran out, Congress stalled on a second relief package with no solution in sight, and the virus infection rate is either the same or even increasing in most states. And Yelp’s just-released August numbers show that early summer rebound appears to be evaporating.

After a Rebound, Small Business Are Closing Again 

Yelp’s top data scientist said in a recent CNBC appearance that the number of closed businesses had ticked back up to 155,000 by mid-August. That means close to half of the businesses that managed to reopen after the initial shutdowns have since closed down again.

“We’re beginning to see overall business closures increase again,” Yelp’s vice president of data science, Justin Norman, said on the business news program Squawk Box. “Up to 155,000 total closures as of August 11.”

Some of these are listed on Yelp as temporary closures, others as permanent. But both types of closure are going in the wrong direction.

“The rate of change of closures, both in temporary and permanent, are also both up,” he added. “We had seen a temporary pullback in the temporary closures, which was an indicator we were hoping would continue.” 

But even the temporary closures are back on the rise. “We’re starting to see in August that trend is not continuing downward,” according to Norman.

The bad news is how many of those 155,000 closed businesses will never reopen. “About 61% total are going to be permanent closures,” he said.

Which Sectors Have Seen the Most Businesses Close?

Restaurants initially fared better than retailers, thanks mostly to take-out and delivery capabilities. But dining is now the hardest-hit sector, with more than 28,000 closed businesses nationwide. Shopping and retail is not far behind in its losses (nearly 27,000 closed), followed by beauty and nail salons (16,000 closed) and bars (nearly 6,000 closed).

Shopping and retail is the only sector Yelp analyzed that saw fewer closures in July than in August. So there may be the beginning of a rebound there, and certain segments of food, travel, and leisure are going different directions than their overall industries.

Business Types With Better Recovery Rates

In restaurants, the exotic sector is rebounding while the original shelter-in-place favorites are in decline. Yelp found that in terms of searches and reviews, Fondue restaurants and Tapas Bars have both doubled their user interest since early May, while original shutdown standbys Chinese Food and Pizza are down about 25%. 

Retail stores are seeing a similar reversion, with near-double interest in Formal Wear and Shopping Centers, but 2 original “essential business” types—Hardware Stores and Cannabis Dispensaries—are both down 35–40% since May 1.

The ability to do business outdoors is helping some industries. In the travel sector, RV Rental and Resorts are doing brisk business during these summer months, while times are tough for Airports and Taxis. On the other hand, the Sports and Activities sector is seeing big gains for Gyms and Bowling Alleys but declines for Golf and Mountain Biking.

That may be an example of a reversion to the mean, a common business and statistics term for how things generally tend to return to normal. Consumers’ springtime panic buying went to essential businesses that were open, comfort food spots, and maybe a socially-distant outdoor activity. More options have reopened over the summer, and consumers may be returning to the types of businesses that weren’t available to them in April and May. 

Or these 2-month variations could just be blips, driven by weather patterns, where certain holidays happened to fall on the calendar, or even swings in Yelp user behavior that do not translate to the larger customer community. 

The reality for American small businesses is that the PPP loan program is currently dry, customers do not feel safe enough to return at previous levels, and some states are staying closed or pulling back their previous reopening orders. These are uncertain and difficult circumstances for low-margin, small businesses to navigate for the long term.

The irony here is that the stock market is returning to its all-time highs, but many small businesses are in serious freefall. We may be seeing a recalibration of the American economy where only the big-box retailers and chain businesses survive to see a post-pandemic landscape, and small businesses with only one or two locations seem to have little or no feasible path forward.

Hope for Recovery

Maybe the upcoming election will change those circumstances. Maybe Congress will put together another round of those incredibly effective PPP loans and $1,200 stimulus checks that they’re currently dithering upon.

Or maybe the small businesses that survive will be those that keep their customers’ trust and provide a safe shopping experience to the greatest degree possible. Clean and disinfect your business, switch to outdoor operations wherever you can, and pay special attention to caring for elderly customers. On the financial end, recoup your COVID-19 costs to make up for these extra expenses. Watch how other businesses adapt too, so hopefully, your company will be among those that remain open for business.