Business

Startups show resilience as the pandemic continues

By Ruiqi Chen
Medill Reports

When the coronavirus pandemic hit the United States in late March, Matt Morfopoulos wasn’t too worried.

As co-founder and chief marketing officer of the Oklahoma text message communications startup Respond Flow, Morfopoulos knew that his business model would survive a socially-distant world because of its emphasis on remote marketing.

However, not every startup was expected to be so lucky.

Four out of 10 of startups had only enough cash on hand to sustain operations for three more months, according to research company Startup Genome’s April 21 global report on the impact of COVID-19 on the worldwide startup environment. This is up from less than three in 10 companies with only three months of runway in December.

Nearly two months after the report was released, it appears to be flat out wrong, said David Beazley, a managing partner with venture capital firm Purple Arch Ventures, which invests in startups within Northwestern University’s alumni network. He estimated that a maximum of a quarter of startups might actually be facing financial failure before the summer is over.

Startup Genome did not respond to a request for comment.

The startup and venture capital industries have taken many steps to ensure as many businesses as possible remain successful during the pandemic, Beazley said. This means focusing on startups that are capable of surviving in a post-COVID world where digital and touchless technologies will have an advantage.

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The other lender of last resort

By Alyk Russell Kenlan
Medill Reports

COVID-19 has caused a role reversal in pawnshop borrowers.

During the first four weeks of Illinois’ stay-at-home order, some pawnshops in lower-income areas of Chicago saw fewer new loans taken out and old loans being paid back early. Pawnshops in wealthier parts of the city, however, faced a rush of new loans as people scrambled for cash.

Federal government relief has not come equally to all. For some middle-income earners, the overnight disappearance of jobs a month ago cast many into financial turmoil, despite stimulus payments and unemployment benefits. For those who were already struggling financially, however, government aid provided more income than before the pandemic employment.

“I’m completely baffled at what happened,” said Daniel Lebovitz, owner of Chicago Pawners & Jewelers located on Chicago’s west side. “People trying to get money is down 50%.”

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Arts and culture non-profits hit by stay-at-home order find flexibility from foundations

By Kari McMahon
Medill Reports

During the spring season, the Garfield Park Conservatory expected around 70,000 visitors to pass through its doors. But on March 17, two days before the first day of spring, the conservatory closed based on public health advice. Visitors stayed home, and revenue was lost.

The free-to-visit conservatory, a botanical oasis located within the concrete of the city on the West Side of Chicago, earns revenue through a combination of memberships, in-person donations at the conservatory entrance, fundraising events and grants. Most of these revenue streams have taken a hit following the implementation of Illinois’ stay-at-home order on March 20 to minimize the spread of the coronavirus.

“The effect has been the shut off of our revenue streams for visitors attending [the conservatory],” said Jennifer Van Valkenburg, CEO and president of Garfield Park Conservatory Alliance, a nonprofit organization that works with the Chicago Parks District to provide events and resources to conservatory visitors.

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Optimistic outlook from analysts on Abbott Laboratories for 2021

By Kari McMahon
Medill Reports

Abbott Laboratories, a medical devices and health care company established in 1888, is one of the few companies equipped to face uncertainty. Now, Abbott may be facing its biggest challenge yet: an economic and health crisis combined.

Over the last 132 years, Abbott, located in Lake Bluff, Illinois, has overcome many obstacles. When the stock market crashed in 1929 and the U.S. entered the Great Depression, Abbott listed its stock on the New York Stock Exchange and continued to expand. During the AIDS epidemic, which began in 1981, Abbott rose to the challenge and received approval for the first licensed test to identify HIV in the blood. A year after the Great Recession, in 2010, Abbott became the largest pharmaceutical company in India.

Now Abbott’s biggest challenge is tackling the global impact of the coronavirus. On Jan. 19, the U.S. had its first outbreak of the coronavirus, and in the following months, cases have continued to rise. The total number of Americans who have died from COVID-19 is 112,967 as of June 11, according to the Centers for Disease Control and Prevention.

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Managing your money during a pandemic

By Michael Thomas
Medill Reports

Managing your money during a pandemic can be difficult, and many were not prepared for this economic crisis. Financial advisor Nicole Lujan of Southern California says the time to start planning your financial future is now. “Preparing for your financial success is always smart and is something you should start now,” she said.

Photo at top: A stack of credit cards. (Michael Thomas/MEDILL)

Walgreens’ weakness can continue during painful post-COVID recovery, analysts say

By Henry Ren
Medill Reports

Walgreens Boots Alliance Inc. has traded near a seven-year low since executives said in early April that comparable sales started to decline due to the coronavirus pandemic, reflecting Wall Street’s concerns about the company’s post-shelter-in-place recovery in what is likely a recession.

Walgreen’s comparable sales rose 26% in the first three weeks of March as U.S. consumers stockpiled prescriptions and cleaning products, Chief Financial Officer James Kehoe said during the second-quarter earnings conference call on April 2. However, comparable sales shrank after March 21, when stay-at-home orders were enforced across the U.S.

“We are confident that this is a temporary situation, and we would expect to see some stabilization of sales trends over time,” Kehoe said.

However, some analysts are worried that the weakness of in-store purchases may pose significant challenges to Walgreen’s domestic and international sales over the coming months.

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Serving customers, restaurants and drivers, Asian Food Delivery Startup thrives during lockdown

By Yun Hao
Medill Reports

When COVID-19 hit in early March, Shuo Yang, a researcher from Northwestern Feinberg School of Medicine, took necessary measures to prepare her family with a two-week supply of food and stopped visiting grocery stores.

But vegetables and snacks ran out fast, so Yang needed to restock. Having no masks or other proper protection, she was caught in a predicament.

“I tried to order groceries from Costco through Instacart at first, but they had either told me that they were too busy to take any more orders, or they needed at least two weeks to deliver to door,” Yang said.

Chowbus Inc., an Asian food and grocery delivery startup headquartered in Chicago, was introduced to Yang by a friend. Launched as an application in 2016 by CEO Linxin Wen and chief technology officer Suyu Zhang, the company serves 20 major cities across North America including New York, Atlanta and Vancouver.

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Possible Hertz bankruptcy could affect SW Florida

By Samone Blair
Medill Reports

Hertz, the rental-car company based in Estero, Florida, is in financial trouble amid the coronavirus pandemic. The SEC has given Hertz until Friday to restructure its debt.

According to Village of Estero Mayor Bill Ribble, Southwest Florida would miss the business, if it were to go out of business. Not only would Floridians working at the corporate campus be out of a job, but hundreds of homes would go on the market, partnerships with nearby Florida Gulf Coast University would end, and the local area would no longer benefit from the company’s altruism.

“They’ve been a part of a lot of the projects we’ve had in the area,” Ribble said. “Habitat for Humanity, they’re a big driver for the United Way, and certainly that’d be a loss for the non-profits.”

Update 5/24: Hertz filed for bankruptcy Friday evening. Hertz joins several other companies that have filed bankruptcy during the coronavirus pandemic, including J.Crew, JCPenney, Gold’s Gym and Neiman Marcus.

Photo at top: Flags fly at Hertz Global’s headquarters in Estero, Florida. (Samone Blair/MEDILL)

Suburban Airbnb pivots to long-term renting after coronavirus hit

By Henry Ren
Medill Reports

Panic crept in as Airbnb host Samuel Szobody lost $48,000 worth of guest bookings in the two weeks that followed Illinois Gov. J.B. Pritzker announcing a statewide lockdown on March 20.

“From April through June, all my calendars just went completely empty,” he said.

Szobody manages nine Airbnb listings in the Chicago suburbs including Aurora, Schaumburg, St. Charles and Waukegan. Like many other Airbnb hosts, he rents houses from landlords, furnishes and sublets them on short-term rental platforms such as Airbnb, Vrbo and Booking.com.

Instead of lowering the price to attract short-term renters, Szobody raised the price to up to $300 a night but offered a 15% monthly price discount for his five-bedroom Schaumburg house. He even encouraged travelers who booked before the pandemic to cancel their short-term stays by offering full refunds which allowed him to have guests seeking month-long stays, he said.

“We have a huge opportunity to host people for the long term,” Szobody said. “I’m doing long-term booking only.”

As short-term Airbnb renters curbed business and vacation trips after the pandemic hit, suburban Airbnb hosts like Szobody pivoted to long-term renting to make up for the loss. An average guest now stays for more than a month in his rentals compared to a previous average of 2.5 days.

While travelers tended to avoid Airbnbs in March in the city of Chicago, an early hot spot of coronavirus infection, suburban and rural Airbnbs in the greater Chicago area thrived. According to AirDNA LLC, a market-research firm that analyzes Airbnb bookings, Airbnb revenues in March doubled year-over-year in Michigan City, Indiana, and tripled in Waukegan, Illinois, while Chicago shrank 11%.

“Travelers [were] fleeing urban centers and heading towards homes just outside the city,” an AirDNA report on non-urban short-term rental markets wrote.

Junqing Qiao, a doctoral candidate at Massachusetts Institute of Technology, fled from his student apartment in Boston in late March, fearing the coronavirus might spread through the apartment’s central air conditioning system. He spent the last two months in a lakeside Airbnb chalet close to North River, New York.

“I don’t see any people from the three-story chalet,” Qiao said. “It’s happy though lonely to stay in a rural Airbnb.”

Szobody was prepared to host urban travelers like Qiao who sought shelters to hunker down in the midst of the pandemic. He stocked houses with six-month supplies of toilet paper and cleaning products.

Szobody purchased an ozone generator with UV light filtration for every one of his Airbnbs. Installed on a smart outlet, the ozone generators can be controlled remotely on Szobody’s electronic devices. High levels of ozone will be used for 12 hours to kill microorganisms after a guest checks out, he said.

“We did everything we could to make our homes into ‘safe havens,’” Szobody said.

With supplies stocked and ozone generators ready, Szobody’s nine houses are fully booked until July. The occupancy rate of his suburban Airbnb portfolio increased from 70% before to more than 85% in June, he said, which means his Airbnbs are empty three out of 20 nights versus three out of 10 nights prior to the pandemic.

Apart from shelter seekers, Szobody was called by house insurance adjusters who want to move clients into Airbnbs for months while fixing their homes.

Ousama Issa has stayed at Szobody’s Schaumburg house since April 19. The house is the third accommodation that Issa’s family of four has resided in since State Farm started investigating a leaking roof at Issa’s home in December 2019. As the pandemic prolonged the fixing process, the family extended the stay at Szobody’s Airbnb until July, Issa said.

Short-term rental marketplaces like Airbnb are winning new customers like insurance adjusters because most hotels are closed during the pandemic, Szobody said.

“When hotels come back online, insurance adjusters are going to stick with short-term rentals because they offer better amenities for customers at a lower price,” he said.

Although the long-term renting discounts dragged Szobody’s revenues down 20% in April from pre-pandemic predictions, Szobody profited about $10,000 in April because costs dropped 40%. Cleaning costs fell as Airbnbs do not need to be cleaned during longer guest stays, Szobody said.

Alex Khokhari, Szobody’s co-host and housekeeper, said he cleaned once or twice per house in April, compared with about 10 times per house before the pandemic.

To retain five part-time housekeepers, Szobody pays them for one housekeeping visit per week for bookings of more than 14 days.

“If my business is covering its costs, it’s not right for my housekeepers to be suffering,” he said.

Airbnb hosts’ pivot to long-term renting will continue if Americans remain uncomfortable about traveling, hospitality industry experts said.

“Domestic travel is not really likely to bounce back for at least the next three to six months,” said Makarand Mody, an assistant professor of hospitality marketing at Boston University. “While travelers are away, the only way that Airbnb hosts can still make money on their properties is by putting them on the medium- and long-term rental market.”

To win customers during and after the coronavirus lockdown, Chris Anderson, a Cornell professor of service operations management, said Airbnb hosts need to have facilities that make social distancing easy.

“What’s going to do well for Airbnb [guests] is a mix that provides safety, security, comfort, distancing and sanitation,” he said.

Anderson’s comments were echoed by Szobody, who is looking for property owners in the Chicago suburbs to fill all the long-term renting inquires.

“If short-term rental businesses are able to pivot, and if they are able to create safe, sanitized and stocked spaces for people to stay in and offer big discounts for [stays of] 30 days or more, they will be profitable again,” he said.

Photo at top: The five-bedroom Schaumburg house that Samuel Szobody rent to the family of Ousama Issa. After the pandemic hit, Szobody raised the price per night but offered large monthly discounts to attract long-term renters. (Courtesy of Samuel Szobody)

Lakeview garden center remains optimistic about summer business despite stay-at-home order

By Kari McMahon
Medill Reports

When the U.S. economy experienced the Great Recession between 2007 and 2009, Susan Brandstetter and her husband, Russell, felt the impact. The owner of a 25,000-square-foot garden center walked away from a commercial lease on their property. They were left with a garden center but with no one to run it.

The couple decided to take ownership of the garden center and reopened it in 2011 as Fertile Ltd. Under their ownership, the center in Chicago’s Lakeview neighborhood offers landscaping services and sells products ranging from flowers, shrubs, trees and garden tools to ornaments.

“I did not know what a petunia was,” said Brandstetter, who used to remodel and manage her family’s property rentals. “I just kind of decided I was going to wing it.”

Nine years later, the couple is potentially facing another recession, deeper than the previous one. The U.S. economy has declined significantly as states implemented stay-at-home orders to prevent the spread of the coronavirus in the country. The orders have changed how businesses of all sizes operate.

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