The New York Times - USA (2020-12-01)

B4 N THE NEW YORK TIMES BUSINESSTUESDAY, DECEMBER 1, 2020

VIRUS FALLOUT | SMALL BUSINESS | RETAIL

In early February, things were
looking good for Practice San
Francisco, a center offering indi-
vidual psychotherapy and classes
for children and adults that pro-
mote physical and mental well-be-
ing. Business was so good that
owner Nina Kaiser, a psycholo-
gist, had just renovated and
moved into a bigger space with
the goal of doubling revenue.
Then the coronavirus pandemic
hit. In early March, Ms. Kaiser
moved all her classes and counsel-
ing services online. Fairly quickly,
however, video fatigue set in. “Af-
ter a few weeks, we saw a big
downturn in attendance across all
our programs, even psychother-
apy,” she said. Thus began a peri-
od of “endless pivoting and trou-
bleshooting.”
Like many other small busi-
nesses, Practice San Francisco,
which has been around for three
years, has essentially become a
start-up again, employing a strat-
egy similar to the “fail fast” ap-
proach well-known in start-up cul-
ture: A change is made to some
aspect of the business and if it
works, it sticks, but if it fails, data
is collected and something else is
tried.
“There has been a lot of flying
by the seat of your pants,” Ms. Kai-
ser said. “We see what doesn’t
work, where we run into trouble,
and we course-correct. It’s this
constant, iterative process.”
That process is crucial right
now for small businesses, whose
numbers dropped by 22 percent —
3.3 million — between February
and April, according to the Na-
tional Bureau of Economic Re-
search.
With Practice San Francisco’s
classes being delivered remotely,
Ms. Kaiser partnered with a local
yoga studio to offer joint program-
ming, increasing both businesses’
visibility and revenue. It worked

for a few months and then became

problematic. “It wound up being

more difficult than I anticipated to

combine two communities with

different expectations,” she said.

Enter the fail-fast approach: The

collaboration has been paused

and is being reconfigured.

After that, Ms. Kaiser decided

to change her class model from

drop-in to series-based, keeping a

cohort of students together for an

entire series. “That builds rela-

tionships within the class,” she

said. “We are now intentionally fo-

cused on building community.” At-

tendance went from one or two

people per class to between eight

and 15. And once it became clear

the pandemic would not be short,

demand for remote psychother-

apy began increasing. Despite the

pandemic-related challenges, Ms.

Kaiser projects that 2020 revenue

will be up 50 percent.

The Greater Knead, a gluten-

and-allergen-free bagel company

in Bensalem, Pa., also was poised

for a good year in 2020. The eight-

year-old company, whose bagels

are sold in bagel shops and super-

markets, had finally turned a prof-

it, with just under $1 million in rev-

enue. In February, sales were up

20 percent and the business was

on track to have its best year yet,

said the owner, Michelle

Carfagno.

But in early March, sales

dropped steeply, as stores closed

and customers stayed home. Su-

permarkets began running out of

the Greater Knead’s bagels and

they didn’t reorder, focused in-

stead on stocking items like toilet

paper and cleaning supplies. By

May, revenue was down 60 per-

cent. A small bright spot, however,

was web sales, which were slowly

increasing. Ms. Carfagno decided

to capitalize on that and invested

in social media advertising, some-

thing she had not done before, to

drive traffic to her website. Now

that people were staying home,

they were seeking the Greater

Knead’s bagels online, and she

wanted to make sure they could

find them.

“Before the pandemic people

learned of us through word of

mouth, store signage and in-store

demonstrations,” she said. “All of

that was gone.”

Soon after, Ms. Carfagno de-

cided to work with a West Coast

fulfillment center, enabling her to

ship nationwide, something she

had not considered before be-

cause of the high cost of shipping

frozen bagels. It turned out to be a

smart move: By September, web

sales were up 250 percent. “We

now see this as an opportunity to

have a direct relationship with

customers,” Ms. Carfagno said.

She abandoned a planned move

this fall to a bigger facility and de-

cided instead to change the physi-

cal layout of her manufacturing

space to increase efficiency. She

also invested in automation, pur-

chasing a state-of-the-art bagel-

making machine as well as a pack-

aging machine, which will vac-

uum seal the bagels, eliminating

the need to freeze them for ship-

ping. Ms. Carfagno projects that

revenue for 2020 will be about 5

percent higher than last year. It’s

not the 20 to 30 percent she had

expected, but the changes she has

made — and will keep making —

have helped her in ways she had-

n’t anticipated.

“We are so much more efficient

now,” she said. “And because we

have consumers buying directly

from us, it’s much lower cost to

launch a new product. We are

looking at other things we could

be selling, possibly a whole line of

gluten-free baked goods.”

Anthony Casalena, founder and

chief executive of Squarespace, a

website building and hosting com-

pany with more than 2.5 million

customers, the majority of which

are small businesses, sees an in-

creasing willingness among these

businesses to try new strategies,

including fostering a more direct

online relationship with their

customers. “Companies creating

new websites on our platform, and

email marketing campaigns, are

at an all-time high,” he said. “And

e-commerce sales on our platform

have doubled.”

Before the pandemic, Seattle-

based Snapbar, which created

custom selfie stations and photo

booths for events, was the kind of

company that did business over

the phone and in person. Its staff

members in five cities would set

up “luxe photo booths” at events

like weddings and charitable ga-

las. Snapbar also shipped “selfie

stands” — easy-to-set-up photo

booths that use an LED light and

an iPad — for use at sporting and

corporate events. At the start of

2020, the eight-year-old company

was on track to more than double

its 2019 revenue, which was $3.2

million.

But by mid-March, Snapbar had

lost all its business, and operating

remotely was not an option. Dur-

ing a night of panicked insomnia,

Sam Eitzen, its co-founder and

chief executive, came up with 50

ideas for “pivots, changes, adap-

tations and reinventions.” Eventu-

ally he and his brother and co-

founder, Joe Eitzen, settled on

Keep Your City Smiling, a direct-

to-consumer site that would sell

gift boxes filled with items from lo-

cal small businesses in a particu-

lar city. “We didn’t rebrand our-

selves or shut down Snapbar, we

just built something new,” Sam

Eitzen said.

In its first three months, Keep

Your City Smiling earned

$500,000 in revenue, with 50 to 60

percent going back to the small

businesses whose products were

included in each box. But as the

pandemic wore on, orders plum-

meted and Mr. Eitzen shifted its

focus again, this time from con-

sumer to corporate gift giving.

That enabled Keep Your City Smil-

ing to stay afloat, but it did not

generate enough revenue to sus-

tain Snapbar.

During this period, however,

Snapbar’s director of engineering

had been intensely working on de-

veloping a product he believed

could save the company: a virtual

photo booth. “Most corporate vir-

tual events feel like lectures or we-

binars,” Sam Eitzen said. “We cre-

ate a custom-designed and

branded photo booth that lives in a

link on the event’s site. So an at-

tendee is still consuming informa-

tion, but they can also engage in

another way, taking a selfie at the

event and posting it on Insta-

gram.”

This pivot transformed Snap-

bar into a tech company. The vir-

tual photo booth is now the fast-

est-growing product it has ever

had. And revenue — after the

company nearly went under — is

projected to be $2 million this year.

“My brother and I really strug-

gled with this big question,” Sam

Eitzen said. “After eight years of

working so hard, is it better for us

to put all of our savings on the line

again? Or do we cut our losses and

let the team go? But we really love

the people we work with. And

that’s why we stayed in it.”

Joe Eitzen, left, and his brother, Sam, founded Snapbar, a Seattle-based
company that created selfie stations and photo booths for events.

Small-Business Owners

Pivot and Troubleshoot

In Battle to Stay Afloat

By EILENE ZIMMERMAN

During the pandemic the Eitzens
started Keep Your City Smiling.

MICHELLE GUSTAFSON FOR THE NEW YORK TIMES

Nichole Craddock, top, an operations manager at the Greater Knead, inspecting bagels before packaging at the

company’s warehouse in Bensalem, Pa. Michelle Carfagno, above, the owner, switched to an online sales model.

MICHELLE GUSTAFSON FOR THE NEW YORK TIMES

3.3M

The number of small businesses

lost between February and April.

Analysts at Morgan Stanley es-
timated that retailers’ overall
Black Friday sales fell 20 percent
from last year, based on early re-
ports of drops in store foot traffic
and increases in online sales. Con-
sumers spent $9 billion online on
Friday, a 21.6 increase from last
year and the second-biggest fig-
ure for online retailers ever, ac-
cording to Adobe Analytics, which
scans 80 percent of online transac-
tions across the top 100 U.S. web
retailers. The firm said online
sales rose to $23.5 billion in the
four-day Thanksgiving-to-Sun-
day period, up 23 percent from
last year.
“This wasn’t a Black Friday, it
was a bleak Friday in stores,” said
David Bassuk, global co-head of
the retail practice at AlixPartners,
a consulting firm. “It is such a
stark contrast to past years. The
stores were really ghost towns.”
The early results from the
weekend, which has traditionally
kicked off holiday shopping in the
United States, show how the sea-
son is being upended by the pan-
demic. Major retailers started of-
fering deals well before Hallow-
een, a shift that was amplified by

Amazon’s decision to hold its an-

nual Prime Day event in the mid-

dle of October. Consumers have

been encouraged to shop early to

avoid shipping delays. Chains

have replicated deals once limited

to stores on their websites and

canceled visits with Santa Claus

to minimize crowds.

Americans were already spend-

ing online before the pandemic,

but the crisis has accelerated the

trend. About 59 percent of shop-

pers had started their holiday

shopping by early November this

year, the National Retail Federa-

tion estimated. Shopper foot traf-

fic declined by 52 percent on Fri-

day, according to data from Sen-

sormatic Solutions.

“The ability to pull the holiday

forward may linger with us,” said

Simeon Siegel, a retail analyst at

BMO Capital Markets. “It’s been a

long time since Black Friday was

simply three hours in the morning

on Friday. Black Friday was al-

ready stretched into early No-

vember, it just happened to make

it into October as well.”

During earnings calls in No-

vember, several retail executives

said they were uncertain about

how much holiday shopping had

actually been done in October and

early November. Matthew Bilu-

nas, chief financial officer at Best

Buy, said “it’s really difficult to

predict exactly how much was

pulled into” the third quarter.

Most retailers operate on a cal-

endar where the fourth quarter

starts in November and ends in

January, in part to fully capture

the holiday shopping season.

“We think it’s going to be a pro-

longed shopping season,” Brian

Cornell, chief executive of Target,

said on a separate call. “We’re go-

ing to see very different shopping

patterns. We don’t expect to see

those big spikes during Black Fri-

day and on weekends.”

Sales on Monday — known as

Cyber Monday since it was con-

cocted in 2005 — are expected to

exceed those on Friday.

But while consumers have

flocked to deals online, Mr. Siegel

said many retailers had carefully

managed inventory and promo-

tions and were largely holding the

line on prices compared with 2019.

“People have become accus-

tomed to doorbusters and ever-

deeper promotions,” he said. “The

reality is at most companies, the

headline promotions are, at most,

flat to last year.”

The bigger question for retail-

ers is how the jump in online sales

may eat into their profits, since

they have to spend additional

money on shipping and process-

ing returns. Black Friday was tra-

ditionally considered the day that

retailers went from being in the

red to becoming profitable, or in

the black, for the year.

“The idea of retailers moving

into the black on Black Friday has

also evaporated,” said Mr. Bassuk

of Alix Partners. “Yes, there is

more volume, but as that volume

shifts to online, it becomes more

costly for the retailers.”

While the number of shoppers

visiting just about every store on

Black Friday was down markedly

from previous years, those who

did venture out were not there to

window-shop.

Craig Johnson, president of

Customer Growth Partners, a re-

tail research firm, said retailers

experienced higher “conversion”

rates, meaning more shoppers in

the stores actually made pur-

chases than in previous years.

“This is a trend we’re expected

to see at this Covid Christmas,”

Mr. Johnson said in an email.

While the results of this year

have prompted some experts to

portend the death of Black Friday,

Mr. Siegel is among analysts who

view 2020 as an outlier, anticipat-

ing that shoppers will return to

stores once they feel it is safe to do

so.

“The pandemic will leave us

with a lot of new traditions but it’s

not going to wipe away all of the

prior,” he said.

The rest of the holiday shopping

season will be closely watched as

a barometer for the U.S. economy.

Millions of people are still out of

work or have been forced into

part-time employment. Overall

consumer spending, which drives

as much as two-thirds of economic

activity, has slowed in recent

months along with the expiration

of some emergency government

spending programs.

‘Bleak Friday’ as Shoppers Choose to Buy Online and Stores Stay Empty

Analysts at Morgan Stanley estimated that retailers’ overall Black Friday

sales were down 20 percent this year, despite a surge in online shopping.

GO NAKAMURA FOR THE NEW YORK TIMES

FROM FIRST BUSINESS PAGE

ENERGY

Exxon Mobil Cuts Billions

In Capital Spending

Exxon Mobil announced on Mon-

day that it would significantly cut

spending on exploration and pro-

duction over the next four years

and would write off up to $20 bil-

lion of investments in natural gas.

The company struggled to

adapt as oil and gas prices tum-

bled this spring when the corona-

virus pandemic took hold. While

oil prices have recovered some-

what in recent months, they re-

main much lower than they were

at the start of the year.

The company said it was re-

moving gas projects from its

plans in Appalachia, the Rocky

Mountains, Oklahoma, Texas,

Louisiana, Arkansas, Canada and

Argentina.

Exxon’s board of directors ac-

cepted a proposal by manage-

ment to slash capital expendi-

tures to between $16 billion and

$19 billion next year, down from

$23 billion in 2020. This year’s

capital expenditures had already

been reduced from a planned

budget of $33 billion, as the com-

pany slowed projects in Africa

and the Permian Basin in New

Mexico and West Texas.

The company said capital

spending would be limited to be-

tween $20 billion and $25 billion

annually through 2025.

Exxon has fared worse than

other major oil companies during

the pandemic. It was removed

from the Dow Jones industrial av-

erage in August and has suffered

three consecutive quarterly

losses. It recently said it would

cut 14,000 jobs, or 15 percent of its

global work force.

The company has committed to

maintaining its dividend, which

yields more than an 8 percent re-

turn on its share price.

RETAIL

British Owner of Topshop

Files for Bankruptcy

Arcadia Group, the British retail

company owned by Philip Green

that includes the Topshop cloth-

ing chain, has gone into adminis-

tration, a form of bankruptcy, the

company said Monday. It is one of

the biggest retail collapses in

Britain since the start of the pan-

demic.

Deloitte has been appointed as

the administrator. Arcadia, which

has 444 stores in Britain, 22 over-

seas and about 13,000 employees,

said it would keep operating dur-

ing administration.

Ian Grabiner, the chief execu-

tive of the group, said in a state-

ment that he had hoped the com-

pany could “ride out” the pan-

demic. “Ultimately, however, in

the face of the most difficult trad-

ing conditions we have ever expe-

rienced, the obstacles we encoun-

tered were far too severe,” he add-

ed.

No layoffs were announced

Monday, but it remained unclear

how many jobs could be saved as

the administrator deals with the

group’s finances.

Arcadia was reportedly seek-

ing a £30 million ($40 million) life-

line, but on Monday the Fraser

Group, a retail chain owned by a

rival businessman, Mike Ashley,

said its offer of a £50 million loan

was rejected.

On Friday, Arcadia said lock-

downs to curb the spread of co-

ronavirus have had a “material

impact” on its business. In recent

years, the company has struggled

to keep up with fast-fashion on-

line rivals, and its dependency on

physical stores has been a disad-

vantage as the virus has sped up

the long-running demise of the

British high street.

Virus Briefing