The early impacts of the COVID-19 pandemic on business sales

ABSTRACT: COVID-19 led to a massive shutdown of businesses in the second quarter of 2020. Estimates from the Current Population Survey, for example, indicate that the number of active business owners dropped by 22% from February to April 2020. We provide the first analysis of losses in sales among the universe of businesses in California using administrative data from the California Department of Tax and Fee Administration. Losses in taxable sales average 17% in the second quarter of 2020 relative to the second quarter of 2019 even though year-over-year sales typically grow by 3-4%. We find that sales losses were largest in businesses affected by mandatory lockdowns such as accommodations, which lost 91%, whereas online sales grew by 180%. Placing business types into different categories based on whether they were considered essential or nonessential (and thus subject to early lockdowns) and whether they have a moderate or high level of person-to-person contact, we find interesting correlations between sales losses and COVID-19 cases per capita across counties in California. The results suggest that local implementation and enforcement of lockdown restrictions as safety measures for public health and voluntary behavioral responses as reactions to the perceived local COVID-19 spread both played a role. PLAIN ENGLISH SUMMARY: Business sales dropped by 17% on average due to the pandemic during the second quarter of 2020 in California. Accommodations lost 91% of sales, whereas online sales grew by 180%. Sales fell more steeply in counties with more COVID-19 cases. We examine how much businesses lost in sales using administrative sales tax data. The average losses of 17% in the second quarter of 2020 relative to the second quarter of 2019 occurred even though year-over-year sales typically grow by 3-4%. We find that sales losses were largest in businesses affected by mandatory lockdowns such as accommodations, drinking places, and arts, entertainment, and recreation. Distinguishing between essential and nonessential businesses, which were subject to early lockdowns, and by the level of person-to-person contact, we find that local implementation and enforcement of lockdown restrictions for public health safety and voluntary responses to the perceived local COVID-19 spread both played a role. The results suggest that small businesses may need more support from governments and consumers to mitigate the strong shift to online vendors, and that the pandemic must be brought under control as a prerequisite to a full recovery. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1007/s11187-021-00479-4.