Ladder Into Sky
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As a financial analyst, it’s easy for me to focus on the big picture alone sometimes.
Whether we’re talking about a positive set of circumstances like what we had on our hands almost all of last year… or something as economically and perhaps personally devastating as the impact of Covid-19… my first instinct is to seek out answers to the following four questions:
- What’s the data?
- What’s the projected impact?
- What’s the expected timeline for how long it should last?
- What’s the best recommendation on how to handle it?
Indeed, I just wrote a Forbes article about that the other day. In “The Coronavirus Is Hurting Restaurants. Here’s What That Means for Real Estate,” I got straight to the point, noting how:
“Aside from the airlines and hotel operators, restaurants could be one of the biggest victims of the coronavirus pandemic.
“In only a matter of days, thousands of eateries – from fast-food chains to fine-dining establishments – have shut down across the country. Eating out at restaurants was one [of] the first things that many people cut back on as they realized Covid-19 could be spread via human-to-human contact.
“And then, one by one, many cities and states across the U.S. began ordering dining establishments to lock their doors, though many are still allowed to offer deliveries and take-out options to customers looking for a quick and easy bite.”
In the very next paragraph, I pointed out the sad truth that there will be scores of smaller business that never open again.
There’s no getting around that.
Bigger Isn’t Always Better, but It Is an Automatic Covid-19 Advantage
Now, in the previously mentioned article, my whole point was to:
- Display the data
- Present the projected impact
- Provide an expected timeline for how long it should last
- Supply a recommendation on how to best handle it.
Specifically, I was recommending two stocks that I strongly believe will come out ahead in the Covid-19 battle. They handled themselves defensively in the good times, and therefore they’ll be able to handle themselves offensively during the bad.
But that’s because they’re well-managed, well-structured, well-funded giants. And it’s that last description that’s the basis of their survival.
There will be bigger businesses that come out behind thanks to the coronavirus. And there will be bigger businesses that completely crumble.
In large part though, that will be because of the merits of their management teams and practices – before, during, and after these unfortunate facts.
Smaller companies, however, can be very well-managed and very well-structured. But what kind of mom-and-pop operation can properly prepare for an economic apocalypse?
There will be those that manage to survive, mind you. But the personal implications for these hard-working entrepreneurs as a whole needs to be stated nonetheless.
I know this not just because of my research on and evaluation of the subject. I know it because I was in those shoes myself once upon a time.
So Many Expenses
Back when I was a real estate developer, I also tried my hand as a multi-unit franchisee for both Papa John’s and The Athlete’s Foot.
It all began with a single vacancy in a shopping center I owned in Chester, South Carolina. Instead of seeking out a new tenant, I decided to become my own by opening my first pizza store.
Three years later, I had seven more of them, plus two shoe stores. Because… why not when that meant my cash registers were ringing just about every single day?
That was an immediate perk of the position. Though there was a downside too, as there always is. There’s not a single form of making money that doesn’t involve paying some kind of price.
For example, there are many, many, many costs involved in running a retail store. I can’t stress that enough.
It’s not just the cost of equipment but also the cost of labor, insurance, marketing, utilities… and rent.
I remember telling my friends that most franchisees were a mere store away from going out of business. There was always a new number to crunch and a new expense to calculate, it seemed.
Those operational expectations haven’t changed a bit since then. So those expenses are adding up fast while available funds are dwindling or altogether dead for the time being.
I can very easily imagine what those small business owners are going through as a result. And it can’t be fun, to say the very least.
There Is a Way Out of Covid-19
As I keep stressing, this Covid-19 disruption will be temporary. The American economy will crank back up. Stores will reopen, consumers will get back to consuming, and rent checks will start flowing again.
Moreover, I’m certain that most commercial landlords will do what they can to provide for their tenants. It’s in their best interest to offer rent concessions or extensions in these tough times.
That just won’t be enough for everyone.
I’ve spoken with many real estate experts over the last two weeks. And the consensus is that we could be looking at a six-week full-on disruption. And then, of course, it will take time for people to feel comfortable spending money again… or going out at all.
Keep that in mind while you’re considering which stocks you want to buy into while the markets are so ravaged.
And also keep that in mind when thinking about the dreams that are dying even as you read. My sincere hope is that those who find themselves out of their pre-coronavirus businesses will find bigger and better things to accomplish in the post-coronavirus world.
If you’re one of them, take it from me – you can do it. Even after having the entrepreneurial rug pulled out from beneath you.
Like I said, I’ve been there. And yes, I’ve done that too.