Last updated on May 15th, 2020 at 11:05 am
There is a lot of uncertainty for businesses across industries right now. Unfortunately for Justin Carlisle, uncertainty means considering a new possibility.
“For once in my life, in the 27 years I’ve been doing this and the seven years of owning restaurants … there’s an end in sight and there’s nothing I can do,” said Carlisle, a James Beard Award nominated chef and owner of Ardent, Red Light Ramen and Laughing Taco in Milwaukee.
Restaurants are one of the most visible victims of the stay-at-home orders issued across the country to limit the spread of the coronavirus, but they’re not alone. Since the beginning of March, nearly 120 companies have filed notices with the state of Wisconsin for mass layoffs or closures. Those notices cover more than 17,300 workers, more than all of the notices filed with the state from 2018 and 2019 combined.
The notices are just a small slice of the whole picture. In Wisconsin alone, more than 336,000 initial unemployment claims were filed in the first four weeks of the crisis, more than any 12-week stretch during the Great Recession. Economists at the Center for Research On the Wisconsin Economy at UW-Madison estimated the state’s unemployment rate was at 16.7% in mid-April.
Carlisle laid off almost all 50 of his employees and he and his wife now man carryout service at Red Light and a pop-up site for Burgers by Ardent at Laughing Taco’s site in Walker’s Point. He’s just trying to keep cash flowing to pay unemployment tax for his employees.
Layoffs are one of the first signs of the economic downturn created by the response to the COVID-19 pandemic. Just as the virus attacks the lungs and makes it difficult to breathe, the social distancing response to the crisis is starving many businesses of cash flow, which, like oxygen, is not just needed to fuel growth but to fuel survival. As costs mount, revenues dry up and rent and other bills come due, many entrepreneurs could be left with no choice but to close for good.
Many businesses were quick to cut expenses to preserve cash. Joel Quadracci, chairman, president and chief executive officer of Sussex-based Quad/Graphics, said when he made the decision to limit domestic travel for employees it was to keep people healthy and quickly limit expenses. Longer term, he’s wondering which of his major customers will make it through, especially in the retail sector, where brick-and-mortar stores were already challenged.
Randy Baker, chief executive officer of Enerpac Tool Group in Menomonee Falls, said he instituted furloughs and suspended the company’s 401(k) match because it offered immediate cost savings. Brown Deer-based Badger Meter Inc. switched to a four-day work week across the company to control costs.
From independent restaurants to multinational manufacturers, the coronavirus is forcing companies to adapt. Any employees who can work from home are doing so, business models are being upended and owners and executives are scrambling to navigate uncharted waters. It is also forcing some to act on plans they were previously developing.
The impacts have not been uniform. A Chicago Federal Reserve working paper found a 40% year-over-year decline in consumer spending at small businesses while spending at large businesses was generally flat with a 9% brick-and-mortar decline offset by a 56% increase in online transactions.
Shoes and diamonds
April and July are typically the two biggest months of the summer season for Kenosha-based Chiappetta Shoes, which sells footwear, pedorthics and custom orthotics, and offers shoe repair services at its 6,500-square-foot storefront.
The business is considered essential with its pedorthics services and line of work boots, and it has used that to its advantage while Gov. Tony Evers’ “Safer at Home” order keeps customers away and other businesses shut down entirely.
In late March, Chiappetta ran a promotion for half-off custom orthotics for its current custom orthotic patients and ended up selling more pairs than ever before, said chief executive officer and fourth-generation operator Tony Chiappetta.
During the shutdown, the business has managed to rake in a couple thousand dollars a day, largely thanks to e-commerce sales through Amazon and the store’s website.
Still, the 99-year-old business saw revenue in recent weeks drop 80% compared to last year and 92% compared to forecasts.
“For a small little business like us, it’s pretty hard to swallow that,” Chiappetta said.
Since mid-April the store has been open by appointment only for no more than two parties at a time. Most of Chiappetta Shoes’ 16 employees were initially laid off, but the plan is to have all full-time employees rehired by May 4, Chiappetta said.
In the meantime, the business is having its full-time sales staff get started on their pedorthics certifications. The process includes an online class and 1,000 hours of apprenticeship work, which will start when employees are back at work.
“We’re making the most out of the time as possible,” Chiappetta said.
As a brick-and-mortar retailer of wedding rings and high-end jewelry, Germantown-based Kesslers Diamonds relies heavily on customers coming into its stores.
Being forced to close its doors as a nonessential business has posed a real challenge over the past few weeks, and resulted in revenue losses in the millions, said Joe Gehrke, president of Kesslers Diamond Center Inc.
“Most consumers want to touch it and feel it and it’s hard for us to do that even through the website or over the phone or sending pictures back and forth,” Gehrke said.
The business had been planning to roll out an e-commerce site later this year, but the shutdown kicked those plans into high gear. Earlier this month, Kesslers did its first-ever virtual appointment with a client over FaceTime.
And with the uncertainty surrounding the pandemic’s longevity and its effect on consumer behavior after it has passed, Kesslers is weighing its options for best serving its shoppers in the future.
“We have to meet clients where they want to be met,” Gehrke said. “And if that means coming into the retail store to purchase new jewelry, we’ll take care of them. If it means having a chat conversation and texting pictures back and forth, we can do that. If it means doing a virtual presentation or them just fulfilling (the order) themselves on our website, I think we have to be flexible.”
Glimpses of light
It isn’t all bad news, though. Companies have acted quickly to contribute to the fight against the coronavirus in their own way, sewing and collecting masks, making ventilator parts they had never produced before, and collaborating across organizations to develop new solutions.
For some companies, the outbreak has played directly into their strength. New Berlin-based IT services firm SWICKtech had a few busy weeks helping customers transition to remote work. In some cases, that meant companies transitioning from having just a few remote workers to dozens, but other clients had no real strategy and employees essentially had to take their desktop computers home with them.
Gary Swick, president of SWICKTech, said things have returned to a more normal pace and he knows there will likely be a slowdown in business in the coming months. Still, he felt it was important to pay out a bonus that allowed his employees to establish a better home office environment for themselves.
“We value our employees,” he said. “They’re our most important resource.”
Business has been off the charts for Delavan-based Geneva Supply Inc., an Amazon and e-commerce strategy and fulfillment provider. Co-founder and CEO Jeff Peterson said the company is essentially living through the kind of demand spike it usually sees around the holidays.
“I’ve never been busier than I have in the last three weeks,” he said.
One measure of how much e-commerce demand has increased comes from Prestige Paints, Geneva Supply’s interior paint brand sold online. A normal day of sales would be 50 to 75 gallons, but during the crisis sales have jumped to 600 to 1,000 gallons per day, Peterson said.
“What this really has proven is people will buy paint online,” he said.
Milwaukee startup Vytal Health, a non-traditional virtual medical group, said it has seen a notable uptick in demand for its services since the outbreak began.
Even so, a global pandemic isn’t exactly Vytal Health’s area of focus. It specializes in connecting patients with clinicians who practice functional medicine. This approach differs from traditional medicine in that it aims to address the root causes of ailments.
The company can help patients dealing with issues related to the virus, such as self-care and coping with anxiety, said co-founder Alex Yampolsky.
Vytal Health recently launched its personalized immune support program, which aims to support patients’ immune systems so they can more successfully fight off viruses and infections.
“We were thinking initially, ‘What can we do?’ Because we’re not an urgent care business, we’re not a primary care business,” Yampolsky said. “So, what can we do in our area of expertise, with nutrition, lifestyle (and a) root-cause approach. Our first gut reaction was, let’s help people support their immune system.”
They are accepting customers regardless of their ability to pay for services right now through “pay what you can” video appointments.
“Everybody’s got a different experience happening, and there are different reasons, both emotionally and physically, in the way they are coping or not coping,” co-founder Dr. Tiffany Mullen said. “I think that that’s where we’re so good at this. We can understand each person in the context of their life.”
Reacting to the situation
There are other growth stories to be found. Angelic Bakehouse in Cudahy saw sales jump 70% in March and it could have been more had the company kept up with demand.
Online education startup Fiveable saw a 500% increase in users.
Waukesha-based Generac has seen a sharp increase in demand for standby generators. Typically, an in-home visit is a key part of the sales process for Generac’s dealers and the company had held off on launching a virtual consultation tool.
“We were just worried about rolling out and there was no real pressure point to do that,” said Aaron Jagdfeld, chairman, president and chief executive officer of Generac.
The coronavirus outbreak provided the push Generac needed and dealers have reported higher close rates and time saved commuting to customers.
“It’s working much, much better than I would have ever thought,” Jagdfeld said.
Similarly, Milwaukee-based bar and restaurant equipment maker Perlick Corp. had been considering a next-day delivery offering.
“We’d been thinking about ways to do this for quite some time and we realized now is the perfect time to actually launch it,” said Heather Shannon, senior brand marketing manager at Perlick, noting that bars and restaurants that are operating with curbside service need to maximize uptime to capture what revenue they can. Those that are shut down, she said, may have done so quickly and may run into equipment problems when they open again.
In one of the most drastic local restaurant pivots, Milwaukee-based Stand Eat Drink Hospitality Group converted one of its Walker’s Point concepts, Don’s Diner, into Don’s Liquor & Grocery, a small retail store selling food, bottled alcohol and in-demand items such as toilet paper and hand sanitizer.
Repurposing the business allows it to sell inventory that otherwise would have gone to waste during the closure. Staying in business also keeps 15 of its employees working during a time when service industry workers are losing their jobs.
“It’s a time to adapt and innovate, and we tried,” said Sean Willie of Stand Eat Drink.
Carlisle isn’t alone in facing uncertainty in the restaurant industry. He, like most independent restaurant and bar operators, thought the federal government’s $2.2 trillion CARES Act would be a lifeline for covering expenses during a shutdown, but as it turns out, conditions of the bill’s Paycheck Protection Program are difficult for restaurants to meet with such limited operations.
Now, what was touted to be a forgivable loan program could bury the industry in debt. Meanwhile, most insurance companies are denying claims for business interruption coverage, so any financial loss due to the COVID-19 shutdown is likely gone for good.
New Land Enterprises, Carlisle’s landlord at Ardent and Red Light, also owns and operates the Crossroads Collective food hall at East North and North Farwell avenues, where restaurant tenants have been forced to close or significantly limit operations. Revenues dropped by almost 50% in March.
“When I look at April, it’s nerve-wracking,” said Tim Gokhman, director of New Land. “I would think that if Crossroads were not supported by New Land, if it were a standalone business, I don’t think it would survive.”
Vendors at Crossroads Collective are adapting, though, including Juana Taco, which is providing take-home kits for customers to build their own tacos.
While April has been troubling for Crossroads Collective, May is when economic challenges could come to New Land’s other interests in multi-family housing.
“It’s hard to gauge what May will look like based on April because people may have dipped into savings, or if they lost their jobs, they may still have had it into late March,” Gokhman said of tenants paying rent. “So, I think there will be more stress on the multi-family market in May than in April. I don’t think anybody would disagree with that. The big question would be, how much?”
While dealing with existing properties is a challenge, New Land is preparing to break ground this summer on another — and ambitious — residential project. Called Ascent, the apartment tower to be built at 700 E. Kilbourn Ave. in Milwaukee will stand 25 stories high and total 264 dwelling units.
Gokhman said deconstruction and engineering work for the project has been completed, and New Land is working to finish up project financing. He is aiming for a July groundbreaking.
“The current situation doesn’t help, but we’ve made significant progress and I think there’s so much inertia, so much progress, we’ll have no issue getting to the finish line,” Gokhman said.
Ascent is just one of a number of major real estate development projects in the Milwaukee area that have had to deal with the impact of COVID-19. In Waukesha, a luxury apartment development planned in downtown, was put on hold after an investor backed out in early March.
Kalan Haywood Sr., president of Milwaukee-based Haywood Group LLC, said in early April that demolition and abatement work was ongoing at the Ikon project. The development, located at the northwest corner of Fond du Lac and North avenues in Milwaukee, consists of an 80-room hotel and a 23,600-square-foot conference center. It involves conversion of a former Sears store into the hotel and construction of the new conference center building next door.
Haywood said work was paused on the project momentarily as crews adjusted to new schedules and procedures due to the outbreak. He said crews were broken down to smaller groups separated by floor. Fewer people are on the job site at any given time.
The adjustments mean that the overall project timeline is being stretched out. But the precautions being taken are necessary to avoid spreading the virus, said Haywood.
He added that in times like this, when many have lost their jobs due to the outbreak, it’s important that development activity continues.
“Development is not only brick and mortar,” Haywood said. “It is about job training, it’s about employment, it’s about safe housing, it’s about addressing the needs of the elderly.”
These projects are allowed to continue because state and local shutdown orders, including “Safer at Home,” deemed most construction activity to be essential. This means that projects can continue in a safe manner while the mandates remain in effect.
But it’s not just the construction and development side of real estate that’s been impacted. Commercial real estate brokers are finding themselves placing more emphasis on their role as advisers as they navigate these new challenges.
That is especially true as brokers assist landlords and tenants working through leasing issues, as many retailers no longer can afford rent, said Bruce Westling, a retail real estate broker and managing director in Newmark Knight Frank’s Milwaukee office.
“Our adviser role is now morphing into assisting tenants and landlords in the discussions that are happening,” he said during a late March webinar hosted by Commercial Association of Realtors Wisconsin. “So, it’s not necessarily a fee involved, but it’s something you have to do to be a part of the transition.”