Shutdown Blues: Business Bankruptcies Soar

We're starting to see the devastating economic impact of the coronavirus shutdowns. A new report shows there were 424 bankruptcies by U.S. companies through the first week in August, putting 2020 on pace for a 10-year high not seen since the Great Recession.

Government-ordered shutdowns were first implemented in March at the start of the pandemic as a way to "flatten the curve" for a few weeks or a month. But some businesses were shuttered for months, others were only allowed to reopen at limited capacity, and others were ordered shut down again weeks after reopening. All while some elected officials continue to call for new shutdowns. "This is not surprising in the least," says Hank Lewis, economist at Lone Star College. "When you take away all that foot traffic businesses depend on, it doesn't take much to figure out that the longer this goes on, the harder it's going to be for certain businesses that really depend on the in-person traffic."

In the meantime, businesses that don't rely on foot traffic are cleaning up. "Big online retailers like Amazon are able to negotiate lower prices and able to get suppliers from all over the place," says Lewis. "It's basically undercutting everybody else."

While behemoths like Amazon, Walmart and Costco rake in business, the so-called Mom and Pop operations are being wiped out. "Unless they find a way to pivot and service their customers with either social distancing or delivery or something like that, those little small businesses are not gonna last," says Lewis.

The bottom line, according to Lewis, is that many businesses can't just switch to a virtual model. "Businesses that have adapted to this new reality are probably going to be able to hang in there, but those that really need the in-person foot traffic are going to see a whole lot of consolidation, a whole lot of liquidation," he says.

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