Closing Permanently "Thank You From the Bottom of Our Hearts"

Mish

Covid-19 has destroyed many businesses. Some claim it's the government's response, not the disease.

One of my readers emailed a sad but eloquently-written note from a business owner forced to throw in the towel. 

Expect millions more similar stories.

It’s with a very sad heart that we are announcing the permanent closure of our hair studio.

This decision did not come easily, and was unanimously agreed up by Amy, Annie and myself. We simply can’t continue to acquire more debt without income.

With Governor Wolf’s latest extension of the stay at home mandate, and with no end in site for the salon industry, we have no choice. We are saddened, overwhelmed, and also outraged.

We are distraught over the loss that our team will experience. We are so sorry for them and for all of us.

We are forever grateful to this community for welcoming us with open arms and allowing us to succeed. For 16 years, we ran a thriving and happy business, gone in a matter of weeks based on the decisions of one man with too much power.

To all of you who have supported us over the years, we thank you from the bottom of our hearts. We will miss you tremendously. You are our friends, our confidants, our people.

For anyone who purchased a Gift Card after March 17, 2020, over the next 7-10 days you will see a full refund. Thank you so very much for believing in us!

With Love,
Amy, Annie, and Rachael

Anywhere, USA

I removed the name of the studio but left the rest intact. The integrity of the owner is commendable, refunding gift cards.

This very sad story will be repeated countless times in the next few months. 

Disastrous Small Business Losses

Small businesses have been hit extremely hard. I covered that aspect in Job Losses by Size of Company: Who Lost the Jobs?

Change in Nonfarm Payrolls by Company Size 2020-04-05

The 1-19 employee category is not through the roof because of single-person firms with no overhead, like myself. 

I wanted to weed out one-person firms but that data is not available. 

I suspect but cannot prove that 3-19 person businesses were the hardest hit by Covid-19.

If you have a store or an office overhead, and income dries up, you are in serious trouble.  

When a third employee is added, the likelihood of an office or lease soars.

Number of Small Businesses

In 2018 the SBA reports there were 30.2 million small businesses with 58.9 million employees.

The above stat shows the average small business in 2018 had 1.95 employees. It's safe to presume small businesses are dominated by those with precisely 1 employee. 

Once a storefront or a lease is involved, business risk skyrockets. 

A 6.4 Million Discrepancy Between Employment and Unemployment

The BLS reported a loss of 20.5 million jobs. 

Unfortunately, that number is on the low side by over 6 million, and the BLS admits it.

For details, please see A 6.4 Million Discrepancy Between Employment and Unemployment.

Inflation or Deflation?

If you believe the Fed's printing press will soon result in inflation, you are mistaken.

For discussion, please see Inflation or Deflation? Collapse in Demand Trumps Supply Shocks

Yet, Hyperinflationists Come Out of the Woodwork Again.

Expect Millions of Bankruptcies

Unfortunately, millions of small businesses will go bankrupt over this. And bankruptcies are inherently deflationary. 

Best Wishes

Best wishes to Amy, Annie, and Rachael ... and Joe, Fil, and Roberto ... and Sue, Mark, and Katy ... and everyone else in similar shoes, Anywhere, USA.

Mish

Comments (87)
No. 1-28
Tony Bennett
Tony Bennett

"If you believe the Fed's printing press will soon result in inflation, you are mistaken."

...

I've lost track of the number of stories of CEOs (and staff) / medical workers / sports leagues / school employees taking proactive salary cuts (temporary). There will be more. Things will get worse before better.

Blurtman
Blurtman

It's so sad, and so unnecessary. Rand Paul, during his reaming of that imbecile Fauci, described something you'd have to have read in the comments sections here, but wouldn't hear it from Fauci, and that is, the very low fatality rate amongst younger healthy people. "Paul, a medical doctor, noted during the Senate hearing before the Senate Health, Education, Labor and Pension Committee, that the mortality rate among children 'approaches zero', and that for those aged 18-45 "the mortality in New York was 10 out of 100,000."" Fauci is 79 years old and a prima donna. He should have retired long ago. You can't have such people deciding economic policy. Why hasn't Fauci been more forthcoming about the fatality related age and comorbidity demographics?

Jojo
Jojo

It's not just small businesses at risk. Here is a story from my local small county newspaper where many of the front page stories these days are touting how bad things are going to become.

Because of the Feds backstopping, too many were relaxed, taking this as some kind of parlor game where everyone wears masks, stands in nice store lines and avoids each other on the sidewalks.

So this story below is about education, which is a solid Dem constituency in CA, and how serious the cuts are going to be. The virtual tears and hand-wringing is palatable. Actions DO have consequences!

Education is facing deficit of $18 billion
K-12 as well as community colleges staring down shortfall for two years
By John Fensterwald

Instead of $3 billion more in funding next year, officials from Gov. Gavin Newsom’s administration are now projecting possibly $18 billion less over two years for K-12 and community colleges. That amount — a historic decline of more than 20 percent in the constitutionally guaranteed minimum level of funding — would have a devastating impact on education, unless Newsom and the Legislature take other actions to reduce the cut or lessen the impact.

The California Department of Finance released its revenue and funding forecast on Thursday, a week before Newsom is expected to release his revised state budget. Financial data reveal the shattering and immediate impact of the coronavirus on the state’s economy. With more than 4 million Californians out of work and applying for unemployment insurance, forecasts project a drop in sales and income tax receipts by more than 25 percent next year.

.....

MarketTalk
MarketTalk

Its Definitely sad to hear bankruptcy news. I know it is going to explode in the coming months and these stories will be everywhere in mainstream media. I feel there is something wrong with way the entire small business are operated and managed. Just two month of shut down shouldn't take out a business which ran for 16 Years.
We need to teach our new generation on debt and concept of saving. It is good to have debt build a business but not to burry it in the long run.
“I’m in debt. I am a true American.” -Balki Bartokomous
mentality should go and one should adopt
“It is the debtor that is ruined by hard times.”-Rutherford B. Hayes

aqualech
aqualech

Rand Paul commonly has a reasonable and independent opinion.

Jdog1
Jdog1

This problem is made worse by the economy being 70% service based. We would be in better shape if we had not off-shored the massive amount of manufacturing jobs that we did. Especially essential durable goods.
People can get along just fine without going out to dinner, but when their refrigerator craps out, they have to replace it...

awc13
awc13

"Best wishes to Amy, Annie, and Rachael ... and Joe, Fil, and Roberto ... and Sue, Mark, and Katy ... and everyone else in similar shoes, Anywhere, USA."

but not the Karens

TimeToTest
TimeToTest

With all the achievements of modern technology and medicine where is the irony in a 32kb strand of RNA crashing the whole thing?

Sechel
Sechel

don't wish economic hardship on anyone, but businesses can be rebuilt, things replaced,lost lives cannot

Carl_R
Carl_R

The bizarre thing about this story is thta
9

njbr
njbr

Maybe an open business could adopt a dead person (or permanently injured person) or two as a mascot. Hang their picture on the wall so customers will feel privileged that some person gave their life for their business.

A sacrifice on the altar of capitalism--like so many before

You know, life comes with no guarantees.

That goes for business or health or life. Yours, your family, friends, strangers.

There are no easy decisions in this, but there are many people who have experienced losses that cannot be restarted or built again. And many more that are to lose those that they love.

Tn builder
Tn builder

We are in big trouble. 50% of nation is willing to see a significant chunk of 70 yr old lives lost in order to save economy and current way of life. Other 50% is willing to take a depression and massive change to society... which is noble although i dont think they under stand big picture implications.
The hatred i see coming will split country further and october will be craziness before election.
Whoa...
Side note... my 2 office managers wont come back to work until july. The feds pay more than i do.

Silver2021
Silver2021

"Unfortunately, millions of small businesses will go bankrupt over this. And bankruptcies are inherently deflationary. "

Yes however as demand shrinks as people are afraid to leave there homes, and supply also shrinks as millions of businesses go bankrupt, what happens as a result, when supply and demand reach an equilibrium...... do salon owners have the pricing power THEN, to raise prices to cover the additional cost of masks, aprons, gloves, sanitizers, sick pay, hazard pay, and every other seat empty?

If not how can they continue to stay in business and make a profit ?

And if eventually they are able to raise prices, wouldn't that cause inflation to rise?

Herkie
Herkie

The hard part about this story that people just do not understand is that most businesses are small businesses, and they operate on slender margins. If you are in business and 95% of your receipts are paying for all overhead with five percent or less paying providing your income there simply is no math that allows you to survive any real downturn in the economy, no less months of being closed, and then half a year at functioning at 25% capacity. Corporations can, they will have to ruin their balance sheet to do it but they can borrow.

I have tried to get four seats reupholstered on a table and chair set for my lanai. All closed. No reopen date. Looks like I will be watching a lot of vid's about reupholstering chair seats. I am not waiting for a vaccine to finish what I started.

And look at this fact, grocery stores operate in an average of less than 1.5% margin on sales. That means they make all their profit after overehead on just a sliver of all sales. If they lose 1.5% of sales to competition they do not go out of business, but they are at break-even. They can pay the wages and bills but there is no profit. Then have something like Covid hit where sales are down more than 20% and the higher margin items just sit there while the bulk lost leaders comprise most sales and you are instantly screwed. Groceries are going to go up fast and not because of supply and demand. They will inflate fast because the stores that sell them to you will have to charge 20 and more percent just to keep their doors open.

If you think we are headed for deflation you are not considering everything in economics. You say nobody wants debt at any rate so the price will have to fall and that is DEFLATION. But remember that rates are inverse to price in the bond markets. If the Fed comes along and says wew will buy any and all debt they are putting a floor under the assets used for collateral that the debt was issued with.

Where is your argument (Mish) that we will have deflation. As far as I can tell your whole deflation argument lay with debt default, debtors can't pay so they default. That spikes the return owners of the debt must recieve/lowers the price of the debt. Um yeah that is Argentina. Have they had this deflation you are so sure of? No, they have averaged 55% inflation for years now.

The IMF will float them an even bigger and cheaper loan. At lower interest since the last time they defaulted.

There is a true collapse coming but it will not be in the US. Ironically because all other currencies are priced in the US dollar we have trillions and trillions in wiggle room. And if things looked bleak a few months ago with oil prices and such look at what a difference a few strands of RNA make. One little virus and we are suddenly far more powerful than ever.

Montana33
Montana33

I'm sorry for their loss and it is profoundly sad that our federal government's non-response has caused this and so many other businesses to fail.

Six000mileyear
Six000mileyear

The large corporations are shifting from furlough to early retirement buyouts, to layoffs. There are still a LOT more unemployment claims to be made, but spread out over the next 4 months. An economic depression is unavoidable at this point.

killben
killben

"Stay Home Stay Safe" is a good slogan but it will land the world in an economic ditch. It is not sustainable. But then the world will accept this only after receiving countless such cards. These losses are being ignored while computing the lives saved due to lockdown.

Carl_R
Carl_R

Rather than closing the economy, why can't we all just wear masks? That's all it takes. If every sick person has a mask, there is no one left to spread it.

Montana33
Montana33
Jojo
Jojo

Better get more monkeys on the printing machines!

April tax collections plummet 55 percent
A sharp decline in economic activity as well as tax cuts approved by lawmakers added to the decline.
05/08/2020

Pharaohed
Pharaohed

Debt Slaves filling for Bankrupcy
Borrow to buy Gold and Silver and join the Bankrupcy mob.

Old Solution for Slavery (Debt)
Before the Hebrews exited Egypt they borrowed from thier neighbors (credit cards)
and left the plagues of Egypt. (and defaulted on their slave master creditor)

Exodus 3:22
But every woman shall aborrow of her neighbour, and of her that sojourneth in her house, jewels of silver, and jewels of gold, and raiment: and ye shall put them upon your sons, and upon your daughters; and ye shall bspoil the Egyptians.

Exodus 11:2
Speak now in the ears of the people, and let every man aborrow of his neighbour, and every woman of her neighbour, bjewels of silver, and jewels of gold.

Worker
Worker

Thank God I'm essential personnel that easily work from home.

We need to open the economy back up. the vast majority of us will be exposed to this virus eventually. In a couple of years, you'll either be immune or dead. The only thing the lockdown does is spread out the initial infections so our medical systems are not overwhelmed. I would guess we're past that threat. If opening up causes problems, we can reverse the decision. We need to use common sense.

The vast majority who die are people who are sick to begin with. Opening up may speed up their death if they get infected, but, not opening will cause extreme hardship on many and may cause deaths in of itself due to despair.

I don't get why we have to protect the sick and elderly at all costs, but are OK with sending 22 year old peak health men into battle.

We had a similar outbreak in 1957. We didn't lock down. We asked people to be careful and wash their hands. 116k us citizens died and our population was half what it is now.

Carl_R
Carl_R

Two things about this story don't make any sense. First, of all businesses, hair salons will recover faster than most. Now, say this was a boutique selling purses or ready-to-wear, it might take quite awhile to recover, but hair salons have historically been one of the strongest businesses around during recessions and depressions. My father always told me that hair salons and bars were booming in the 30's, but no one else did well. Covid changes that for bars, but clearly hair salons are going to pick back up sooner than most. They are open now in my state, so long as the customer and hair cutter both wear masks.

Second, there is absolutely no reason they should be out of money at this time. If they did a PPP loan, it would pay the wages, rent, and utilities. For a hair salon, that should be almost everything. That should get them through May and June, and by the time those 8 weeks are over, they should be running at full capacity.

davebarnes2
davebarnes2

MATHGAME
MATHGAME

Are individuals the only entities in this economy who are continually urged (urging usually ignored of course) to have 3-6 months of emergency funds available "just in case"?

What kind of business owners / CEOs / CFOs out there don't adhere to similar advice?

Oh ... that's right ... nearly every entity in the economy follows the lead of all levels of government and the Fed and lives "over the edge" totally financed by debt.

OOOPs ... sounds like utter financial incompetence to me ...


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