Yelp's Data on Business Closures Describes a Depression Rather Than a Recession
Anyone who has walked by or driven past strip malls knows that many of the businesses there are closed down during the COVID-19 pandemic. What may not be as obvious is just how many of those businesses are now gone for good and will not reopen at all. The most recent data from Yelp Inc. (NYSE: YELP) does not read as if there is just a recession. It reads more like an outright depression.
Yelp has shown the number of business closures in general, but it also points to specific sectors and which regions have been impacted the worst. There is another aspect of the report, which has not been addressed at all, which should be strongly considered by those who are out of work and hope to return to their same job or to a similar job. That job and similar jobs may no longer exist at all in the future. Permanent business closures will translate to permanent job losses.
The Yelp Economic Average report covering the second quarter of 2020 points out just how dramatic the impact from COVID-19 has been in local economies. There is a correlation between increased interest in restaurants, bars and nightlife, and gyms to spikes in COVID-19 cases in many of the “hotspot” U.S. states.
Despite a declining trend in the total number of business closures, Yelp showed that permanent business closures now account for 55% of businesses closures since March 1. That is a 14% increase in permanent closures from June (between June 15 and July 10). As business closures become permanent, there are far less opportunities to find jobs even as the economy is allowed to open back up in a reduced capacity.
Higher consumer interest in May was shown to correlate with COVID-19 hot spots in June, but Yelp also indicated that there were over 132,500 total business closures by July 10.
Yelp also pointed out that cities with some of the nation’s strictest stay-at-home orders, specifically naming San Francisco and Honolulu, are now seeing the highest relative numbers of business closures.
What Yelp’s data also show is that areas with a major COVID-19 outbreak also see negative consumer interest in those businesses where social distancing is harder to enforce. And where COVID-19 cases remain flat or decrease, Yelp indicated that consumer behavior and local policies tend to revert back towards what was the norm before than pandemic. The latter scenario sounds great, except that this also leaves an area (or state) vulnerable to another COVID-19 outbreak in the near future.
Yelp’s Local Economic Impact report from June found a decrease in business closures, showing that there were 140,000 permanent and temporary closures on Yelp from March 1 to June 15. After having risen to over 147,000 total business closures as of June 29, that fell back down to just over 132,500 total closures as of July 10. But looking back further to April’s 175,000-plus business closures, Yelp indicates that only 24% of businesses which were closed back then have now reopened. The number of permanent business closures as of July 10 rose to 72,842 and that is up by 15,742 permanent closures since just June 15.
The states with the largest absolute number of total closed businesses were California (29,351), Texas (11,118), and New York (8,731). Las Vegas was shown to have the largest number of permanently closed businesses at 861, and Yelp pointed out that Los Angeles led in absolute closures with 11,342 total business closures with temporary and permanent closures combined.
The worst industry for total closures is now the restaurant industry with 26,160 total closures as of July 10. Yelp showed that 60% (some 15,770) of those closures are now permanent. And while bars and nightlife are shown to be six-times smaller in total than restaurants, those have seen 5,454 total business closures and 44% of them are listed as permanent closures.
As for shopping and retail businesses, some 48% of the 26,119 total business closures are now considered to be permanent closures. The categories for beauty and fitness showed a similar trend as retail stores.
Yelp did indicate that some sectors are weathering the storm. Professional services, such as lawyers and accountants, have seen fewer closures. Companies which offer online services (web and graphic design) have also benefited from the shift to working remotely. While there have been widespread reports that healthcare visits and procedures have been lower, Yelp indicated that physicians, counseling and mental health services, and health coaches have been closing at lower rates. Businesses tied to education, such as tutors, have also been successful during the distance learning.
There have been some sharp changes in the interest level in restaurant choices. Yelp showed that German and French cuisine, live and raw food, and steakhouses all saw higher consumer interest since June 1. The interest in fast casual and common delivery foods was shown to be on the decline, but at a slower rate.
Another demographic shift has been a rise in supporting black-owned businesses. Yelp showed more than a 7,000% increase from a year earlier from May 25 to July 10 for a total of 2.5 million searches.
While Yelp’s data pertains to consumer shifts and total business closures, the reality is that more and more permanent closures in retail, restaurants, and other physical businesses all adds up to permanent job losses. It also points to being a really bad time for landlords who own strip malls or actual malls. While having tenants who skip rent or are late on rent is bad, it’s an entirely different issue when those businesses are permanently closed and there may not be any new business willing to step in to take their space.
This data likely acts as one more dark cloud over the millions of eviction notices that are likely to be sent out in the coming weeks.