May 25, 2022

The Bay Area’s small business closure crisis is already here

When the Triptych Strength Training gym opened in San Francisco, it was a chance for Tarquin Thornton-Close to finally build the kind of workout space he had long envisioned — lots of room, limited numbers of people at a time, and plenty of strength-training gear.

After all, working out is more than just a physical activity; it can be a therapeutic experience, said Thornton-Close, who started as a personal trainer at high-end gyms on the East Coast before moving to a 24 Hour Fitness in the Bay Area, eventually becoming an independent personal trainer and then opening his own gym in September 2016.

“It’s not just pumping iron,” he said. “It’s exercising their demons, pun intended.”

But now, it’s all gone. Unable to hang on any longer after a nearly six-month coronavirus shutdown, Thornton-Close closed the gym in August. His has become one of the roughly 8,300 businesses that have closed in the Bay Area since the start of the pandemic, about 3,800 of them permanently, battered by the loss of income and a customer base still wary of indoor activities after reopenings in June led to a spike in COVID-19 cases and deaths.

The Bay Area has some of the highest business closure rates in the nation, according to newly released data from Yelp. Roughly one out of every 100 businesses in the San Francisco metropolitan area, which includes Alameda, Contra Costa, San Mateo and Marin counties, has permanently closed since March 1, according to the data, which is based on firms listed on Yelp’s platform. That’s about 2,900 businesses. Another 3,300 are temporarily closed.

In the San Jose metro, which includes Santa Clara and San Benito counties, about 9 out of every 1,000 businesses are permanently closed. Those are the second and fifth-highest closure rates in the U.S. The other metro areas in the top five — Honolulu, Las Vegas and San Diego — are, like San Francisco, heavily dependent on tourism.

California enacted some of the earliest and strictest lockdown orders in the country and has maintained a COVID-19 death rate far lower than other large states such as New York, Illinois and Florida. But the state has seen at least 39,000 small business closures, about 19,200 of them permanent. California has the third-highest permanent closure rate in the country, after Nevada and Hawai’i.

Those losses could have a far-reaching impact. Small businesses employ nearly half the state’s private workforce, according to California’s Small Business Advocate Isabel Guzman. They are the backbone of the economy, she said, and make up the grocery stores, auto repair shops, dry cleaners and other goods and service providers we need day to day.

“The Main Street businesses really define our neighborhoods,” Guzman said.

Among the hardest hit have been fitness businesses. Since March 1, almost 2,600 have closed permanently nationwide, according to Yelp. For Thornton-Close, the decision to shut down was all about the numbers. His landlord had given him a break on rent, but that reprieve was almost up. He had decided to not apply for federal loans, saying they didn’t really help his business. Staying open, he said, would’ve meant taking on more costs, risking defaulting on business loans and even his home loan.

“It wasn’t an easy decision in the sense of, emotionally, but from a logistics and business point of view, I had no other options,” he said. Trying to stay open, he said, “would have ruined us financially.”

That’s the danger facing Julie Pancoast, who opened Pancoast Pizza in Walnut Creek with her husband in 2012 after the Great Recession. Their East Coast-style pizza shop had been doing well back before outdoor dining was allowed, and a federal Paycheck Protection Program loan helped with labor costs. But now, that money is gone, business is slow, and they still owe money for a pre-pandemic renovation to expand indoor seating. Plus, they face a looming commercial rent increase that she’s hoping to negotiate with the landlord.

But she and her husband have already started updating their resumés.

“It’s crushing. We put everything we have into this,” she said. “If we have to close, we might even lose the house.”

The shop, where many of the pizzas are named after family members or important places in the couple’s lives, has pivoted every way possible, eliminating delivery fees and expanding their delivery area, offering a distance learning lunch delivery special, expanding outdoor seating. They’ve raised their prices for the first time in two years and laid off one of their four full-time employees.

“We don’t know what each day is going to bring,” she said.

Flexibility is what Neil Rubenstein recommends to small business owners when they come to SCORE East Bay, part of a national chain of nonprofit organizations that provide mentors and technical assistance to entrepreneurs. His group has been busier than ever in the past six months, he said.

Rubenstein says instead of telling people what to do, he’ll ask about strategies they’ve tried, suggest options that might bring in some revenue, and pose more difficult questions about how long they’re willing and able to remain unprofitable.

“If you got a reasonably successful business, you can hang on for a certain period of time,” he said. “But not forever.”

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