Businesses turn to new business models to survive in the face of the COVID-19 pandemic
In the last few weeks, the landscape of business has changed in fundamental ways in the U.S. and globally, the breadth and depth of which we can’t yet fully comprehend. These changes have challenged companies to rewrite their forecasts, cut their budgets, and their mode of operation — essentially overnight. Many businesses are closed completely or are operating exclusively on an online ordering/curbside-pickup model. Retailers such as Macy’s and Kohl’s have moved exclusively to online ordering/shipping way of doing business. Restaurants and bars are operating on an order pick-up or delivery model in an attempt to stay in business for as long as they can during the pandemic.
As of this writing, three-quarters of all Americans are on stay-at-home orders. This has made these new business models increasingly more important as these businesses struggle for their very survival. Unfortunately, this is will get worse before it gets better.
Restaurants and Drug Stores
The CARES Act signed by the President on March 27, 2020, offers help for small businesses and individuals, but many are concerned that the relief is insufficient.
Restaurants, bars and a nationwide drugstore chain are turning to food delivery services such as Uber Eats, GrubHub and Postmates to get online orders to their customers. Walgreens just announced it is expanding its on-demand delivery to over 7,000 stores across the U.S. through its partnership with Postmates. Customers can now order over-the-counter medications, household essentials and convenience products through Postmates’ app, or by visiting Walgreens’ website. Postmates offers “contactless” delivery options in most states.
As states and municipalities increasingly order the closing of restaurants and bars, and most brick and mortar retail businesses, we are seeing the following:
- Restaurants and other businesses are shifting to deliveries and curbside pickups as a way to stay in business.
- GrubHub, Postmates and Uber Eats are temporarily suspending commission fees to help smaller restaurants as they work to stay afloat via delivery.
- They’re also rolling out no-contact delivery options so customers and drivers don’t have to interact with each other.
Retail gets a huge hit!
- Most retail stores have turned exclusively to an online ordering-mail delivery busy model.
- Faced with depleted cash reserves and extended store closures amid the COVID-19 outbreak, retailers turned to mass furloughs this week.
- Department stores including JCPenney, Kohl’s, Macy’s, Neiman Marcus, and Nordstrom have ordered employees to take mandatory leaves of absence. Among those retailers, up to 314,000 workers are being furloughed.
- Other apparel retailers have done the same: L Brands is furloughing most store staff at Victoria’s Secret and Bath & Body Works. The same goes for 90% of Ascena Retail’s 43,000 employees, nearly 80,000 of Gap’s store employees, and most workers at Urban Outfitters brands … and this isn’t even the entire list.
- Visits to U.S. stores fell nearly 98% last week compared to the same period last year, after American retailers closed their doors, according to location-data provider Prodco Analytics.
- Total store closures have surpassed 200,000 as of March 30, according to GlobalData Retail.
- Grand total: Around 600,000 workers at major U.S. retail chains have been furloughed so far. More are expected to roll in as rents go unpaid today, April 1, 2020.
What does this all mean?
- Online sellers are showing enormous increases in sales to consumers and businesses.
- Huge marketplace facilitators and third-party sellers on these marketplaces are being overwhelmed.
- Despite a slowdown in luxury clothing sales, online sales of leisurewear, household goods, drugs, food and drink have soared all across the country placing online businesses into the Wayfair “economic nexus” net. Online businesses and their owners will need to carefully examine their nexus “profile” to determine whether they are now obligated to register in a particular state and compute, collect, remit sales tax on the sales of their goods, and file sales tax returns.
Stay tuned for my next report in this series where I will focus on the revenue challenges faced by states and municipalities in light of COVID-19 and what that is likely to mean for online sellers, food delivery services and others.
If you have questions, concerns or need additional insight on your situation, you can reach out to author and sales and use tax expert, Mark Friedlich at firstname.lastname@example.org.
NOTE: CCH Incorporated is not engaged in rendering legal, accounting, tax or other professional services. If legal, accounting, tax or other expert assistance is required, the services of a competent professional should be obtained.
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