John and I have been busy running a chain of cell phone repair shops for the last 5+ years. During that time, we’ve developed relationships with companies and people in China who supply us with many of our parts and accessories for our stores.
Coming out of Chinese New Year, it was clear from every message we were getting from China that things weren’t normal over there. Factories delayed opening for a week, then until early March, and now until April 8 (still the current date when factories we are in touch with plan to reopen, although this could change at any time.)
It was clear by early February that there was going to be a significant shortage of parts in our industry. We stocked up on parts, buying through May, when we typically keep only a 1-2 week supply.
For a couple of weeks, I watched as the wholesale industry got decimated while consumers acted as if nothing was wrong. The stock market even went up! I knew it couldn’t last forever, but I’ve been burned before by calling recessions too early. I called the 2008 recession in 2006, and I called this most recent one in 2018.
I strongly believe this will turn into a recession. Even if China gets back online in April/May, this is a 9/11-style event for many businesses. I lived through 9/11, which happened while I was working at Sun Microsystems. Corporate travel restrictions meant that for several months, airline travel dipped dramatically.
Now we are seeing the same thing, but mainly with international travel. However, Amazon has now announced that all non-essential employee travel both international and domestic has been cancelled. Amazon may be the first major US company to announce this, but it won’t be the last.
Throughout this entire scenario, my motto has been Prepare, don’t panic. I urge you to adopt a similar strategy. To that end, I’m going to get you ahead of the news. What should you start thinking about now as a business owner?
First, especially if you live in a major city, it’s critical that you have a plan for what to do should you (and all your employees, if they live in the same area) be quarantined in your house for 14 days or more. I understand that right now this seems far-fetched. Unfortunately, Covid-19 does not seem like it will die out any time soon. It is different from SARS and MERS in that it has a long incubation period without people displaying any symptoms of being unwell.
China implemented what are currently seen as drastic measures, shutting entire cities down and forcing people to stay at home. However, as years pass, we will understand that without these drastic measures, Covid-19 would have spread much faster. Even now, experts say that Covid-19 is not really “stoppable”–the best we can hope for is to slow it down long enough that a vaccine comes into play. Quarantines will help slow the spread of the virus. That means: prepare for a quarantine.
Understanding Force Majeure: What Is It and How Does It Work?
Many of us have contracts, such as rental agreements, manufacturing contracts, and more. Should a quarantine come into play and materially affect your business, there is a clause in most contracts called force majeure. If you’re like most business owners, you probably haven’t really paid attention to this.
I strongly recommend you start reading those contracts now and understand what it means if your business is materially unable to continue for a few weeks (or longer.) For instance, you may be entitled to not pay rent for the duration of a quarantine event in your city.
Now, let me be clear: There is a lot of gray area in the above statement! Do not assume anything based on what I’ve said above. Instead, take the time to open up leases or other large contracts you may have and read the force majeure clause. One of the key components of many force majeure clauses is that you have to give the other party notice, for instance.
I’m writing about force majeure for two reasons: 1) You, as a business owner, should be aware that invoking force majeure is a possibility instead of potentially losing your business due to failure to pay rent or otherwise make good on a contract due to Covid-19; 2) You should be aware that in many cases, invoking force majeure requires notice.
Please consult an attorney with experience in force majeure before taking any actions in regard to the above. If not handled properly, you may be in breach of contract. I am not a lawyer and nothing I have written constitutes legal advice.
Check Your Liability Insurance
Now that we’ve covered force majeure, now is also the time to read the fine print in any commercial general liability insurance policy that you may have. Here again, you may be entitled to a payout if your business premises are forced to close due to a quarantine in your location.
Not all insurance policies will cover this scenario, but it’s something to look into. Once again, I am not a lawyer and this does not constitute legal advice. (Here’s a more in-depth look at potential liability coverage situations.)
Need Something Before June? Buy It Now
Now would be a good time to buy anything you need before June 1, especially if parts or all of it are manufactured in China. Keep in mind that most packaging is made in China, too, so even if a manufacturer has a part, they may not have the package for it.
On the flip side of this, if you can wait on buying something until the end of the year, wait. I think we will see some good deals once production ramps backup and supply chain gaps have been filled, as business spending slows down and producers need revenue to continue financing their operations. Just keep in mind that if you wait, you may be waiting until next year.
Some Silver Lining in the Clouds
Out of every negative event comes some positive changes. The negatives are well-covered by the mass media, so here are some hopes I have for how the coronavirus will positively change our world:
- More working from home. I bought some ZM (Zoom Video Communications) stock last week, as I think video conferencing is going to hugely benefit from Covid-19.
- Reduce air travel, especially international travel and especially for business. Just like 9/11, I expect we will see a decline in air travel for quite a while. I list this as a positive since air travel is so terrible for our environment. I’d like to see businesses embrace more remote meetings as a way to reduce time wasted traveling and commuting.
- Reduce unnecessary consumption. I hope Covid-19 will cause both consumers and businesses to take a second look at how much they are spending on unnecessary items. To be clear, I don’t wish food or basic necessity shortages on anyone! However, when throwaway, single-use, or otherwise “cheap” items become unavailable due to supply-chain shortages, I hope we will see some trends toward longer-lasting, higher-quality items instead. (Use the cups you already have, for instance!)
- Better health practices. In the past few weeks, people have become aware of how many people die from the flu annually, and that most of us are not washing our hands correctly. I’d like to see better health practices across the board to make us healthier as a society.
- Better sick leave practices in the U.S. Once we understand how much our current “must come to work, even if you’re sick” practices are costing us as a society, I hope we can get employers and government alike to understand that people need to take time off if they’re sick. That time off should be paid, up to a reasonable amount of days per year. As of this writing, too many employers do not offer any sort of paid sick leave at all.
- Better healthcare in the United States. Putting on my rose-colored glasses for this last hope: I would like to see this as the catalyst for the U.S. to start serious adoption of a better healthcare system. I could spend an entire blog post and then some talking about how bad our current system is, but I’ll leave it at this: I would like to see us adopt something similar to Canada here. Maybe this is what it will take for more Americans to agree with this sentiment.
If you’ve found this blog post helpful, and/or would like to see me continue writing in this space, feel free to email me at erica AT erica DOT biz. I try to stay a few days or weeks ahead of the curve, and since I have direct contact with folks in China, I’m happy to continue writing from my perspective as a business owner who does significant business there. Remember: prepare, don’t panic!