Businesses, individuals and industries have been impacted by COVID-19 pandemic in various ways, which we often won’t realize until much later. From a financial lending perspective, the impacts are equally significant and varied. According to the Mid-Sized Bank Coalition of America, 56% of regional banks have more than 10% of their commercial and industrial loan portfolio on modification or postponement.
In some industries, like manufacturing, we have seen companies innovate quickly and adapt to the changing needs of society by changing their production lines to meet today’s demands. For others, like commercial real estate, there are various unknowns about what the future holds for offices, hotels and senior residences, making preparation and planning extremely difficult.
What we do know is that our economy will continue to fluctuate over the next few months and that every sector will need to be flexible, nimble, and responsive to the new world we live in. Here is a look at the impact of several industries by COVID -19 and the steps they have taken to adjust and adapt.
Construction + Contractors
The construction industry in the United States typically has more than 7 million employees and creates nearly $ 1.3 trillion in structures each year, according to the Associated General Contractors (AGC) of America, the leading association of the construction industry. However, it is one of the industries that has been hit the hardest this year.
According to ACG last report, employment in industry fell in 225 metropolitan areas, or 62%, out of 358 between June 2019 and June 2020, despite increases in May and June. Why has this industry been so badly affected? Construction companies experienced a massive number of project cancellations and delays earlier this year in the wake of the COVID-19 pandemic, leading many to fire or lay off employees.
But all is not bad for the construction industry. In one recent poll According to ProCore (a construction project management company), 81% of industry executives are optimistic about a rebound before the end of the year. In addition, many companies are tackling the pandemic by readjusting project cost projections, staggering worksite schedules for social distancing, and creating new safety procedures. Industry experts are also urging government officials to help the sector recover by enacting accountability reform, boosting infrastructure investment for public projects and tax credits, as well as expanding the paycheque protection program.
Manufacturing
From medicine and electronics to food and drink, America’s manufacturing industry is a monster. According to the National Manufacturers Association (NAM), the industry accounts for over 11% of total economic output in the United States and employs about 8.5% of the workforce. It is yet another industry that has been significantly affected by COVID-19.
Today, many manufacturers continue to face supply chain disruptions, operational changes and negative financial impacts on their businesses as a result of the pandemic. Some of their biggest challenges include reducing customer demand, implementing increased safety protocols, temporary shutdowns due to outbreaks at their facilities, ongoing workplace sanitation, and staggered shifts. , to name a few.
Besides states that deem manufacturing non-essential, industry success stories have come from manufacturers who are able to quickly adapt to the changing needs of customers and suppliers. This includes those who have been able to produce personal protective equipment (PPE), hand sanitizers and suppliers of cleaning products, plexiglass and other supplies related to COVID-19.
Like the construction industry, manufacturers are looking to Congress and government to take action and help support and sustain the industry. Led by NAM, the industry is calling for federal funding and interest-free loans, delayed tax payments, changes in employee benefits, reduced regulatory burdens, tax credits and more.
Wholesale distributors
The wholesale distribution industry has nearly 6 million employees in the United States with annual revenues of more than $ 5.9 trillion, according to the National Association of Wholesaler-Distributors (NAW). Wholesale distributors buy products directly from the manufacturer, store them in a warehouse, and then sell and ship those products directly to retailers or customers.
Over the past five months, wholesalers have had to examine their supply chains, labor needs and customer behavior to find their niche and relevance during the pandemic. According to SAP (a market leader in software), nearly 75% of companies report supply chain disruptions due to COVID-19 travel disruption, and nearly half of wholesale distributors are reducing inventory future. More than 33% have laid off employees.
To help tackle these challenges, industry experts advise moving quickly to more e-commerce as consumers’ buying habits change, adding additional suppliers to their networks to ensure a regular inventory of products and implementing data computing upgrades to help track and control their ever-changing inventory.
Commercial real estate
Comprising of the office, industrial, multi-family, and retail sectors, the commercial real estate sector in the United States is an important part of the overall economy. According to the NAIOP, the Commercial Real Estate Development Association, the industry supported 9.2 million U.S. jobs in 2018 and contributed $ 1.4 trillion to U.S. GDP. And like many other industries, it has been hit hard by the pandemic.
Of the four industry sectors, hospitality and retail were two of the hardest hit in 2020, as the pandemic halted construction, travel and shopping. The multi-family sector has remained stable over the past few months, but there could be future impacts as the economy tries to rebound. There are fears that vacancy rates may be on the rise in the coming months, as residents’ employment and financial situation could be affected by the pandemic. The silver lining in the commercial real estate sector remains the industrial sector. While e-commerce remains strong, the industrial real estate market continues to grow due to increased demand for warehouse space from wholesalers and distributors.
No matter the industry, have a financial plan
No matter what industry you are in, there are certain considerations and conversations you should be having with your finance team right now. These conversations should include a review of your business plan, a review of cash flow projections, debt refinancing options, budgets, staff and benefits, and income projections. From a lending perspective, we know businesses need more cash than ever before, and most financial institutions are working with existing and new customers to provide more working capital.
What we find most interesting is that the companies that are currently successful are the ones that are flexible and responsive. They adapt and evolve quickly to our new world and respond to current market demands. Understanding what the needs are today and changing to meet those demands will pay off for many businesses today and in the future.
Zach Fee is president of the regional bank for UMB Bank and can be reached at [email protected].
