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A tale of two pandemics: Big-box stores rake in record profits while small businesses fold

As consumers shift to bulk-buying and one-stop shopping, the pandemic is driving a wedge between the haves and have-nots across the retail industry.

While Wall Street rewards big-box stores for their monster sales volumes during the pandemic — propelling retail stocks such as Target to a record high this week — thousands of the country’s small businesses are still hanging on by a thread.

The widening gap between retail giants and smaller, locally run stores is underscoring the pandemic’s effect of driving a wedge between the haves and have-nots across the industry, as consumers shift to bulk-buying and one-stop shops.

“We're sharing second quarter results that are, by virtually any measure, exceptional,” Target CEO Brian Cornell told investors on Wednesday. “The incredible resilience of our team, the way they've risen first to the pandemic, then to social trauma touched off in May here in Minneapolis is unlike anything I've seen or am likely to see again in my career.”

Target’s online sales soared by 24 percent during the quarter ending Aug. 1, compared to the same time last year. The company also grabbed $5 billion in additional market share in the first half of the year, Cornell said.

Walmart saw a 97 percent increase in online sales during the quarter compared to the same time last year, and online sales at Lowe’s jumped by 153 percent. Home Depot reported a 23 percent surge in sales, fueled by people looking to improve their space while stuck at home.

With coronavirus cases continuing to rise in parts of the country, people aren’t venturing out to shop as much as they did before, causing a blow to mall retailers and small businesses that were not categorized as essential services during the first days of the virus.

Before the pandemic, people used to shop at different stores for different products. Now, all that has been disrupted, because no one wants to go outside.

“What used to happen before the pandemic is people used to shop at different stores for different products — and that has been disrupted because they don’t want to go outside,” said Neil Saunders, managing director of GlobalData's retail division. “The stores we do visit are the ones that are capturing more of our spend, and Target and Walmart have really benefited.”

But as big-box retailers gain from people consolidating their shopping carts at one of their hundreds of chain stores, small businesses have struggled to survive. Far more small-business owners experienced lower sales from May to July compared to the prior three months, according to Christopher Carlozzi, a state director with the National Federation of Independent Business. Sales at small businesses stand at negative 28 percent, down nine points from May when it was at net negative 19 percent, he said.

There is no comprehensive data on how many small businesses have closed since the pandemic. But from March 1 to Aug. 11, about 155,000 business shuttered, according to the online reviews site Yelp. The company estimates roughly 91,000 of the closures are permanent. The American Bankruptcy Institute, a trade group representing bankruptcy law professionals, expects the 2020 total number of small businesses that will file for bankruptcy this year could increase by 36 percent from last year, according to Bloomberg.

“Some of these small businesses did all right,” Carlozzi said. “I’m not going to say they’re doing well, but they did OK.”

The federal government’s Paycheck Protection Program, introduced in March as part of the CARES coronavirus relief package, was designed to offer a lifeline to small businesses by covering the cost of their staff. With more than half the country’s workers employed by small businesses, the program aimed to protect a vulnerable group of employees who faced unemployment if those businesses ran out of cash and were forced to close. But the program has been riddled with controversy, and many business owners failed to receive funding.

For Neil Abramson, the program helped to stave off layoffs even though his consignment business has just now reached 80 percent of sales it made during the same time last year. Abramson closed the doors at ECI Stores in Leominster, Massachusetts, for three months this year, and all 22 employees were placed on furlough. Now that he has opened back up, Abramson has rehired all of his staff, and is moving inventory online to catch sales from customers who don’t feel safe coming in to the store.

“You can’t replace three months of income. But we’ll be able to grow out of this,” Abramson said. “I believe this will pass. We won’t always be in fear of going out of business.”