Economists, business leaders predict period of great change on horizon
In his daily media briefing Tuesday, Gov. Andrew Cuomo called for a new federal stimulus package he hoped would do more than reopen America following the COVID-19 pandemic. It’s time, the governor said, to be “aggressive,” “creative” and “smart” in the nation’s efforts to revitalize the economy.
“Now is a chance to actually reimagine America,” the governor said.
That sentiment echoes the thoughts shared by local economists, business leaders and other public officials interviewed in recent weeks about the immediate future of the North Fork economy. The experts painted a bleak picture of the short term — massive unemployment and shuttered businesses — but agreed that with proper leadership, creative thinking from businesses and additional federal assistance, North Fork commerce can shift to a “new normal” that favors safety, imagination and partnership.
“Hopefully we’re looking back at this five, 10 years from now and saying ‘Do you remember the pandemic?’ ” said BNB Bank CEO Kevin O’Connor.
The head of a local bank that’s issued close to $1 billion in Paycheck Protection Program loans to nearly 4,000 businesses, Mr. O’Connor admits he might be a little too optimistic about how many small businesses will survive the economic shutdown mandated by the state to control the spread of the virus that has so far infected at least 41,000 Suffolk County residents and claimed the lives of more than 1,200 of them. “As a banker, I have to be optimistic,” he said. “I give people money expecting them to pay me back.”
But it’s not just business loyalty and a desire to see partners succeed that gives him hope.
Mr. O’Connor recalls how many local companies reinvented themselves during the 2009 financial crisis and he believes the lessons learned then will serve today’s roster of shopkeepers, winery and restaurant owners, and other small businesses across the East End.
“The human spirit to survive is strong,” he said. “I think the willingness of consumers to support local businesses is there. I would like to think the desire of local politicians is to put their petty grievances aside to create an environment that would be positive and flexible to [help local businesses] survive.”
One challenge with the PPP loans received by small operations is that it is expected to be forgiven if business owners can bring back their employees within eight weeks, but that’s a difficult proposition for companies that haven’t yet been given the green light to reopen.
Payments on the PPP loans don’t begin for six months, Mr. O’Connor said. If employees are not brought back to work, it becomes a 1% loan over 18 months.
While he doesn’t have an exact figure for how much of the nearly $1 billion that originated from BNB ended up in the hands of East End businesses, Mr. O’Connor estimated that about half the small businesses in Greenport received funding from the bank.
“I’m hopeful that along the way enlightened politicians will change the rules and you’ll have more than eight weeks to spend that money,” he said. “It was a lifeline, but it’s a lifeline that gets them temporarily to the other side. Whatever the other side looks like.”
Restaurants and wineries are of particular concern. They make up a large portion of the North Fork economy and will be among the last operations to reopen to in-house service. While many continue to serve take-out and some have adapted to offer free delivery to meet consumer demands, it’s unlikely they’ll be able to offer seated service for several more weeks or months. When they do reopen, they will almost certainly be facing density restrictions that could challenge them to turn a profit.
“For a [debt] leveraged restaurant, it’s going to be a very hard row to hoe,” said Tom Flesher, an associate professor of economics at Suffolk County Community College. “They are so dependent on getting their cash flows in on a very regular basis. For them, particularly if we’re talking about a restaurant that’s at a higher price point … they’re going to have to make a choice between coming back and offering the same experience they’ve offered before and having fewer customers because of social distancing guidelines or offering a higher-revenue experience like curbside or delivery or offering something that has lower food costs.”
Mr. Flesher noted that one way restaurants have already changed business models and “held down the fort” during the shutdown is by offering family pack meals. Food and beverage products that go out the door — instead of “continuing to sell the experience” — might remain a key to some level of success even after the shutdown ends, he said.
Still, Mr. Flesher called it a “conservative estimate” to project that half the region’s restaurants will go out of business — or never reopen — in the coming months.
“You see restaurants as a high-failure-rate business in the first place because it’s very difficult to build a base of new customers,” he said.
‘Even if businesses open, people are going to be afraid to patronize. We’re seeing a behavioral shift that is unprecedented in modern history.’Dave Kapell, former Greenport mayor
John Rizzo, chief economist for the Long Island Association, the region’s largest business group, had a more optimistic view of the future health of restaurants, but said Mr. Flesher’s estimate, while “a little extreme” from his point of view, is certainly “at the high end of plausible.”
Both Mr. Flesher and Mr. Rizzo said one thing restaurants will not be able to do to survive is to raise prices. “[Going] out is a consumer discretion luxury item,” Mr. Rizzo said. “Therefore consumers are very price sensitive. In other words, raise the price a little, they cut back the expenditures a lot.”
Mr. Flesher anticipates discretionary funds will be low to begin with as unemployment is likely to remain high.
Safety is the other key issue facing small businesses that rely on customers shopping in person as social distancing practices are expected to continue into the foreseeable future.
“Even if businesses open, people are going to be afraid to patronize,” said Dave Kapell, a real estate professional, former Greenport mayor and a member of the Long Island Regional Economic Development Council. “We’re seeing a behavioral shift that is unprecedented in modern history.”
He anticipated many consumers will be extra cautious when shopping after the reopening and he understands that point of view. A cautious approach to reopening is crucial, he believes.
“I know there’s a big push now to get back to business and I support that to the extent that it’s intelligently managed with science as the basis,” Mr. Kapell said.
Mr. Flesher said it’s likely we’ll see what economists call a “double-dip recession” where there’s a rebound that’s not sustainable and is followed by another economic decline.
“There will almost certainly be a big increase in GDP, in spending and in income after we reopen,” he said. “But we’re unlikely to see a large majority of people able to go back to their service-sector jobs … a lot of the jobs just won’t be there for people to go back to. I don’t think we’re going to be able to sustain a large demand, at least not immediately. So we are at risk of dropping back down.”
Nearly everyone interviewed for this story said the inclination of local government to work with small business owners and commerce groups will be critical to the survival of local enterprise. Potential solutions offered ranged from a new federal stimulus package that gives more companies a chance at making ends meet to a willingness of elected officials to find creative solutions that allow businesses to keep their customers safe while also serving enough of the population to pay the bills.
Mr. Kapell and others interviewed supported a concept of expanding to open-air commerce, something that would surely require the cooperation of local governments, by opening public spaces, including parks and roadways, to business. “That planning should be happening quickly,” Mr. Kapell said.
Mr. O’Connor said there is going to have to be some level of new understanding for businesses to come back and survive and he agreed that using public spaces to increase business reach while still protecting public health could be a solution.
“If you were able to open the sidewalks up so it was wider or close main streets to cars, that creates a whole bigger experience and wider area for these restaurants and small businesses to apply their wares,” he said. “This is going to take lots of people pulling together. It’s going to take business improvement districts or the chambers of commerce, strong organizations from the communities, to come up with ideas.”
Mr. O’Connor said he’s often amazed by the entrepreneurs he meets as a banker.
“The successful ones, they’re always thinking about the next part of their business,” he said.
Asked if there needs to be “a complete reimagining” of the East End business community, Mr. O’Connor gave a one-word response: “Yes.”