From restaurants to retailers, virus transformed economies

NEW YORK – It would be just a temporary precaution.

When the viral pandemic erupted in March, employees of the small insurance firm Thimble fled their Manhattan offices. CEO Jay Bregman planned to call them back soon – as soon as New York was safe again.

Snow in New York City - fantastic image, skyline with urban skyscrapers in Manhattan, USA

Within weeks, he’d changed his mind. Bregman broke his company’s lease and told his two dozen or so staffers they could keep working from home – possibly for good.

The gains were at once unexpected and immediate. Bregman is saving money on rent. He no longer has to persuade recruits to relocate to a crushingly expensive city. He’s increased his staff by 20% and for the first time added new hires in Texas and California.

”I was very skeptical at first that we could conduct business this way for a long time,” Bregman said. But having employees work from home proved a ”huge benefit” for everyone.

Like no other event in memory, the pandemic has upended economies in the United States and across the world – transforming how people work, travel, eat, shop and congregate. It has changed how students are educated, how people communicate, how households are entertained and which industries, geographic areas and categories of people will thrive and which will suffer.

It has widened a gap between educated and affluent people who can work from home and the less fortunate – people in lower-income households without college educations or high skills who depend solely on wages rather than stock or home equity gains – who now stand to be left further behind. And it’s forced many working mothers to quit their jobs for lack of child care.

The economy shed a shocking 22 million jobs after the pandemic struck. Many employers have since recalled some of their furloughed workers. Yet the recovery has slowed. Not until the end of 2023 does Moody’s Analytics foresee the U.S. economy regaining its pre-pandemic employment level. In the most bruised sectors – hotels, for example, and retail – changing economic habits mean that employers may never need as many workers as they did before the pandemic.

Even after vaccines have conquered the virus, economies have restored their health and jobless people have found work again, the economic landscape will almost surely look different. Among the many life-altering consequences of the year 2020, the coronavirus reshaped how people and businesses engage economically.

At the very least, the crisis accelerated trends that were already well underway: A shift away from physical stores toward e-commerce. The flexibility of working from home. The streaming of movies rather than theatre-going. Frequent meal deliveries. Video-conferencing replacing much business travel.

”We’re not going back to the same economy,” Federal Reserve Chair Jerome Powell told a European Central Bank forum last month ”We’re recovering, but to a different economy.”

Businesses are rewriting their business plans to keep up. Warner Bros Pictures announced this month that all its 2021 movies, including a new ”Matrix” movie and ”Godzilla vs. King Kong,” will stream on HBO Max at the same time that they appear in theatres – a seismic shift for Hollywood. Restaurants are testing delivery-only ‘‘ghost kitchens” to keep serving customers who remain wary of crowded dining rooms.

Even so, economists say it’s far from certain which of the myriad changes will prove permanent and which may fade as people who’ve been holed up at home for months return to their pre-pandemic routines.

Will white-collar workers yearn for their old cubicles and face-to-face contact with friends and colleagues? Will foodies return to fashionable restaurants, young people to the hottest bars? Will audiences once again gather, elbow to elbow, for symphonies, Hollywood blockbusters and Broadway musicals? If attendance doesn’t return to normal, can those industries survive?

For the economy’s vast retail sector, the urgent question is: Will customers want to shop in physical stores in numbers anywhere near what they used to be?

Retailers like Lisa Shah are holding out hope. Shah has been hurt by a plunge in tourism in Massachusetts and New Hampshire, where her three LIT Boutique stores are located. Before the pandemic, her women’s clothing stores combined would see about 600 customers each weekend. Government-mandated restrictions and the anxiety of customers have slashed that figure essentially in half.

Shah has since built up her online store, changed the brands she offers and dangled discounts. She keeps asking herself what else she can do.

”I don’t know where else to pivot,” she said. ”We’ve pivoted so much.”

Optimistically, some experts detect a collective hunger to return to the old ways, at least for people with the means to do so – to the familiar and comfortable routines of gathering at bars, dining in restaurants, strolling in stores, flying off on vacation.

”I don’t think you should overestimate how much will be permanently changed” by the pandemic, said Jacob Kirkegaard, senior fellow at the German Marshall Fund of the United States. ”The idea that COVID will be a fork in the road for a lot of things – I am personally skeptical.”

People, Kirkegaard said, ”want to go to restaurants. They want their life back, not a new life they haven’t tried before.”

China, where the virus originated, may provide a hint of what’s to come for others. After that nation mostly contained the virus with a draconian lockdown and became the first major economy to emerge from the pandemic, normal life reasserted itself with surprising speed. People returned to restaurants and shops, even though guards still check temperatures at malls and supermarkets. Cinemas are about half-full but have reopened. Chinese are beginning to travel for fun again.

MISSING THE OFFICE, NOT THE COMMUTE

Uncertainty about COVID’s lasting impact is evident in how companies and workers have spent months weighing the pros and cons of remote work.

Thimble’s head of product, Mitch Kushinsky, enjoys the flexibility of working at home. He has an old dog that needs to go out every hour to relieve himself. If he didn’t work at home, Kushinsky would probably have had to put the dog down. He doesn’t exactly miss the commute downtown from the Upper West Side.

Then again, Kushinsky has to share the home workspace with his wife, who can be noisy. Then there’s the unexpected: When a pipe burst in his building, he found himself working alongside construction workers who had to tear down a wall in his apartment to make the repair.

Sometimes, he just misses being with co-workers.

”You learn a lot just being around people,” Kushinsky said. ”You lose that working remotely.”

For all the attention focused on employees who can work effectively from home, they are hardly a majority. According to a McKinsey Global Institute study of 800 jobs in nine countries, only a fraction of people work in jobs that can effectively be done remotely – fewer than 30% of workers in the United States, for example, and fewer than 12% in India.

Still, a McKinsey survey of 800 corporate executives worldwide found that 38% of them expect their employees who are now working remotely to continue to do so at least two days a week after the pandemic. That compares with 22% in surveys before the pandemic, according to McKinsey.

The shift is big enough to have far-reaching implications – improving the quality of life for some, while deepening inequality and hurting some urban economies. Emptier cities are a grave threat to downtown restaurants and retailers that depend on office workers. Rents in cities like San Francisco and New York are sinking as more people move out. Municipal governments will struggle to collect enough taxes to provide services.

Some employees now working remotely express mixed feelings about the arrangement. A body of studies indicates that most of them oppose giving up the workplace environment entirely.

”I miss Manhattan so much – it feels like a piece of me is missing,” said Han Dang, Thimble’s 31-year-old chief of staff, who has been working out of her apartment in Queens, where she grew up. ”Every time I go back, I remember the places I went to, the coffeehouses, the shops.”

Janet Pogue McLaurin, a global research leader for the architecture and planning firm Gensler, expects many companies to eventually adopt a hybrid model, allowing people to work from home once or twice week. In a survey of about 2,300 U.S. office workers, Gensler found that only 19% wanted to keep working from home full time. More than half said they’d favour going to the office part of the week. One-third said they wanted to be in the office full time.

Verizon is reviewing which of its employees’ jobs can be done most effectively from home, said Christy Pambianchi, the telecom giant’s chief human resource officer. But Verizon has decided that its 20,000 employees who work in customer service centres, answering questions by phone or online, will work from home permanently.

Before COVID, Pambianchi said, ”there were a lot of things they thought they couldn’t do remotely. Not only have they done it; they have done is successfully for eight or nine months.”

Jazmyn Brown worked at Verizon stores for more than six years, rising to manager by the time the pandemic hit. When her store closed, she was transferred to customer service, a job she will do from home permanently.

Brown, 31, is delighted. The move eliminated a long commute that kept her away from home in San Diego until 8 p.m. and gave her less than an hour with her young son. Now, she ends her workday at 4:45 p.m., with just a quick drive to to pick up the 2-year-old from his grandmother’s house. Last year, she didn’t even have time to buy a Christmas tree. This year, it’s already up.

”Everything has slowed down, and I have more time than before,” Brown said. ”I don’t miss driving. I don’t miss traffic. I don’t miss filling my gas tank twice a week. I can cook dinner, and I’m not exhausted so we can spend time together.”

THE GHOST IN THE KITCHEN

The pandemic has caused an unimaginable nightmare for the restaurant industry. Some of the scars will likely linger.

In pre-pandemic days, Brenda’s French Soul Food was always hopping. A popular restaurant in downtown San Francisco, it drew tourists and locals alike with its beignets and other Southern foods.

Everything slammed to a halt on March 16, when San Francisco banned indoor dining to stop the spread of the coronavirus. Suddenly, 150 employees were jobless. Chef Proprieter Brenda Buenviaje couldn’t bear to break the news in person.

It’s a story that has happened again and again this year. The National Restaurant Association estimates that one in six U.S. restaurants – more than 100,000 – have closed. Many that stayed open shifted to takeout and delivery, but they need fewer staff. The association estimates that 2.1 million U.S. restaurant workers remained out of work in November. Hudson Riehle, who leads research for the association, predicts that U.S. restaurants will collect $659 billion in revenue this year – down 27% from the roughly $900 billion the association had forecast earlier this year.

Independent restaurants were hit hardest, said Rick Camac, a dean at the Institute of Culinary Education in New York. Loans from the government’s Payroll Protection Program helped initially. But that money has long run out. After an anemic holiday season, Camac expects another big wave of closures early in 2021.

By contrast, some fast food chains have mainly recovered, thanks to a growing customer use of drive-thru and curbside service. In China, the world’s second-largest economy after the U.S., spending at restaurants was up 0.8% in October from a year earlier. But customers are still uneasy. Some bring their own utensils, and restaurants keep jugs of hand sanitizer at the front door.

”Now, I will be more careful,” said Chen Luping, a 38-year-old mother of two in Beijing.

The pandemic has accelerated a trend toward takeout and delivery that was already well underway before the virus hit. In February, 63% of U.S. restaurant goers were eating their food elsewhere; by the third quarter of the year, that figure reached 90%, Riehle said.

Even when restaurants eventually reopen at full capacity, in-person dining may never revert to its pre-pandemic levels because so many people now prefer eating at home, says David Portalatin, an analyst with The NPD Group.

Restaurants are rethinking the amount of dining space they need and are adding drive-thru lanes. Starbucks is closing 400 U.S. cafes and speeding up its plans to build more pickup-only locations. Menus have slimmed down to control costs and focus on food that travels well. Ghost kitchens, which prepare food for delivery only, may proliferate. Carrabba’s Italian Grill, a 220-restaurant chain, has launched a delivery-only brand called Tender Shack out of its kitchens.

”We fast forwarded about five years into the future in a few months’ time,” Portalatin said.

Buenviaje kept afloat in several ways. Brenda’s French Soul Food reopened for takeout and delivery. And she’s now shipping meals nationwide through a service called Goldbelly. Buenviaje sold out of Thanksgiving dinner kits and is creating some for Christmas.

Smaller takeout-focused branches elsewhere, including Brenda’s in Oakland, which opened just before the pandemic, are thriving. And soon, Buenviaje will start delivery in Silicon Valley through a ghost kitchen. She’s been able to rehire 75% of her staff.

”Out of necessity,” she said, ”we figured out a new path together.”

GROUNDED

The pandemic grounded most corporate travellers. And it demonstrated that much of the business that used to be done in-person can be achieved as effectively, or nearly so, via email and Zoom conference calls. Amazon, which told it employees to stop travelling in March, says it’s saved nearly $1 billion in travel expenses so far this year.

Any long-term decline in business travel would have far-reaching consequences – for corporations as well as for the airlines, hotels and restaurants that cater to them. Business travel accounts for more than a fifth of global spending on travel and tourism.

Delta Air Lines CEO Ed Bastian has suggested that business travel could settle into a ”new normal,” 10% to 20% below where it used to be. Southwest Airlines’ CEO Gary Kelly noted that while overall passenger revenue has dropped 70%, business travel – normally more than one-third of Southwest’s traffic – has tumbled 90%.

”I think that’s going to continue for a long time,” Kelly said.

One possibility: Instead of sending executives out on regular trips to check on field operations, major companies could fly key employees to headquarters once a year.

In the meantime, some tourist destinations have so far managed to weather the storm. German restaurants and hotels in top tourist destinations like the seashore or the Alps – especially those with outdoor terraces or beer gardens – enjoyed some respite over the summer as many people vacationed at home rather than flying to Mediterranean destinations. It’s unclear, though, whether that trend will continue.

MALL MELTDOWN

The pandemic has also changed – or sped up changes in – how people shop. Worried about venturing out in the pandemic, people shopped much more online. When they had to go out, they favoured one-stop shopping at big box stores and discounters. The trend has been devastating for smaller retailers and mall-based stores.

The trend toward online shopping has been growing, of course, for years. But the pandemic accelerated it by perhaps two years. Big box stores like Walmart and Target and other big retailers that are deemed ”essential” also benefited from being allowed to stay open when much of the economy was locked down in the spring.

U.S. non-store retail sales (including e-commerce) grew 5.6% faster than store sales from January 2011 through this March. Since then, the gap has ballooned to 24.4%, according to Retail Metrics, LLC. Traditional retailers are retreating in the face of competition: 11,157 U.S. stores have closed this year, far surpassing the previous high for store closures: 8,706 in 2017, according to CoStar Group, a real estate research firm.

Copying discount stores, retailers like Kohl’s and Macy’s added curbside pickup for the first time this year. Best Buy is reducing the amount of floor space set aside for traditional shopping and devoting more to in-store pickup and to support deliveries of online orders.

In China, too, e-commerce has experienced a huge boost. Housebound families shopped online, paying with internet- and cellphone-based systems. Online merchants posted double-digit sales gains during the pandemic. Traditional retailers, which had to shutter for two months, are struggling to draw back shoppers, even with discounts of up to 70%.

E-commerce accounted for 24.2% of Chinese retail spending in October, versus 14.3% in the United States, the biggest share for any major country.

The decline in traditional retailing, coupled with the rise in people working at home, carries ominous implications for commercial real estate, too. Demand for office and retail space throughout urban downtowns is likely to stay weak, offset only partially by e-retailers’ growing need for warehouse space.

The exodus of downtown workers has been devastating for neighbourhood restaurants like Forlini’s, a Chintatown fixture since 1956 popular with lawyers and judges who work in lower Manhattan.

Derek Forlini, who inherited the business from his father and now runs it with a cousin, used to relish chatting up customers in the dining room. He was always surprised and delighted when a judge recognized him in the street.

Over the summer, Forlini erected an outdoor dining space and installed plexiglass shields indoors. But the lunchtime crowds never came back. At first, Forlini brought back nearly all his 20 or so employees. Yet within weeks, he had to cut the staff down to about 10. He couldn’t bring himself to let go any more staffers; many are longtime friends.

”I couldn’t cut any chefs,” Forlini said. ”I just couldn’t pick and choose.”

Forlini and his cousin eventually had to forgo their own salaries to keep paying the staff. When New York reinstated a ban on indoor banning this week, Forlini decided to close the restaurant – not forever, he hopes.

”Manhattan is ghost town,” Forlini said. ”Nobody’s working – they all went to Zoom. And then there are people who just won’t come to restaurants. I know if we reopen, we’ll be working for nothing again.”

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Wiseman reported from Washington. Dee-Ann Durbin in Detroit; Anne D’Innocenzio, Joyce M. Rosenberg and Jake Coyle in New York; David McHugh in Frankfurt, Germany; Joe McDonald in Beijing; and Cici Chen in Shanghai contributed to this report.

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