Small businesses that have pivoted to making masks and disinfectants are still feeling an impact on their bottom line
In the first months of the pandemic, companies rushed to produce and distribute face masks, medical supplies, hand sanitizer and other products that were suddenly scarce, incredibly expensive, or unavailable at all costs.
Businesses large and small have responded to the need and pivoted to meet these new demands, although many of them were also facing drastic reductions in sales and growing losses. But as the science around the coronavirus has evolved and the immediate supply shock of those early days is now over, some of these companies are left with merchandise they can’t sell – or even give away, in some cases – or stocks of raw materials filling their homes or production facilities.
“I have always written about risk in the supply chain, [and] never seen anything like it, ”said Eric O’Daffer, vice president of research in the healthcare supply chain group of consulting firm Gartner. “Some companies have pivoted all of their product lines. “
In the early months of the pandemic, companies were driven by a sense of social responsibility as well as their bottom line.
Maya Cata had owned a vintage clothing store on Etsy for 12 years, but when the pandemic hit, the Omaha-based entrepreneur learned to sew herself and set up a second store called Mod Masks.
Cata said she struggles to price her face masks, for which she charges around $ 14 each. “I know I can’t compete with stores like Old Navy or the big retailers that manufacture in China,” she said. “Even designers like Kate Spade charge less than what I charge. Cata said she found a successful niche by sourcing fabrics with artistic, esoteric or vintage-inspired prints as a way to differentiate herself without having to compete on price.
Managing its inventory of this material, however, has been a learning curve. “I had bought a lot at the start of the pandemic… I was constantly buying fabric,” she said. “I have a fairly large kitchen, so I have fabric in my kitchen cabinets.”
In April 2020, Etsy CEO Josh Silverman told CNBC that about 20,000 stores on the platform sold face masks. Some are now finding that the initial surge in demand they experienced has faded faster than they expected, especially after the Centers for Disease Control and Prevention announced in the spring that those fully vaccinated no longer needed to wear masks in many circumstances.
“It took us by surprise. This drastically dropped demand in late May, June and July, ”said Kumar Mata, who owns a dry cleaning business in suburban Washington, DC, and started selling masks last year to maintain income and so he could keep an employed seamstress.
“The market has been a roller coaster this year for mask makers,” he said.
Mata said he finds imports have reduced sales of his own masks, which are made in-house and sell for between $ 8 and $ 12 at his Etsy store, Virginia Tailors. “I don’t know how to get rid of my inventory now,” he said. “We started to lower our prices and, because we are a traditional dry cleaner, we started giving the masks free to our customers.”
Andrew Hogenson, global managing partner of consumer goods, retail and logistics at Infosys Consulting, said companies can’t trust the carefully calibrated formulas they usually use to predict the amount of product to go. manufacture or order from their manufacturing partners. “There is a social mandate to get out as much as possible, so all the traditional mechanisms and sophisticated systems that companies have are completely ineffective,” he said. “Obviously, there is no precedent for how much PPE [personal protective equipment] you will sell in the event of a pandemic.
Large companies were not immune to the effects of soaring demand: Clothing giant Hanesbrands told investors in its final quarter of 2020 that the company was “switching from PPE”. The company said the introduction of the Covid-19 vaccines “along with slowing retail orders and a flood of competitive offers have dramatically reduced our future sales opportunities …” CEO Steve Bratspies told investors during the company’s earnings call for the last quarter of 2020.
O’Daffer said healthcare providers initially found themselves scrambling in response to critical shortages of masks and similar supplies. Now they have “hundreds and in some cases thousands of pallets left, so we’re seeing depreciation at the supplier level,” he said.
Some of these missteps could have been avoided if a strong federal response had been put in place from the start. O’Daffer pointed out that even the largest healthcare organizations are reduced to ad hoc solutions. “In almost every market in the country – 300 healthcare systems in the United States and they all operate locally – many distilleries have come in and made hand sanitizers,” he said.
While the Korean War-era Defense Production Act – legislation that can require a manufacturer to put government orders at the top of its queue or even dictate what items a company produced to meet an urgent need – may seem tailor-made to mobilize an entire government to a global pandemic, President Donald Trump’s White House has preferred to leave the response to the pandemic to the private sector and individual states, an approach that ultimately pitted states in bidding wars against each other for scarce supplies.
A July 2020 analysis by the Congressional Research Service found that DPA had been invoked infrequently in response to the pandemic. The report called its deployment “sporadic and relatively narrow,” noting that the process suffers from gaps in reporting standards and lacks a centralized data collection mechanism. “There is no ongoing requirement for the publication of DPA shares, and no centralized repository where they are collected,” the report said.
The financial blow to small businesses hired to meet the explosion in demand in the first few months of the pandemic has been particularly severe, said Holly Wade, executive director of the NFIB Research Center, which is part of the National Federation. independent companies, a commercial group. “It’s more difficult for small businesses because they often have fewer tools to compensate,” she said, along with less financial cushion.
This is a challenge for small businesses struggling with excess sanitizer and spending money on this transition because they need to invest money and resources.
“Definitely, this is going to have an impact on small businesses that are now struggling with excess hand sanitizer or other types of products,” Wade said, especially for businesses that have retooled production lines. whole. “For those who have spent money in this transition and have nothing to fall back on, it is difficult because they have to invest money and resources,” she said.
Artisanal distillers were at the forefront of this upheaval. With commercial supplies of hand sanitizer and surface sanitizer running out, countless small businesses accustomed to making gins, whiskeys and other spirits found themselves responding to frantic calls from local governments, hospitals, nursing homes and ordinary Americans.
Jaime Windon founded Windon Distilling Company in 2013 to make artisan rum, but found herself making a hand sanitizer by the gallon in the spring of 2020. The Windon Rum Distillery is co-located with a second artisanal operation specializing in vodka, so the two pooled their equipment and supplies.
“When we started, we thought we would make a 30-bottle batch,” said “We didn’t plan to produce batch after batch… hundreds of gallons – far more than we ever imagined.”
“We had directives from the [Food and Drug Administration], and it was a big legislative lift, ”she said. An ongoing challenge was to ensure that the equipment used to make the disinfectant did not come into contact with its alcohol production line, as regulators require alcohol to be adulterated with bitter chemicals to deter them. people ingesting the product – chemicals that can irreversibly contaminate equipment.
“We had to be very careful… a thing or two certainly fell victim to the production of hand sanitizer,” she said.
In the early months of the pandemic, companies were driven by a sense of social responsibility as well as their bottom line. “Of course there is the social aspect of that, which is the call to arms – everyone has to do their part,” Hogenson said. “Everyone went all out. “
“Our small business was encouraged to stop our vodka production and start making a hand sanitizer,” said Chuck Butler, founder of Dalton Distillery. “It was a big lesson for me as a small business owner. If something like this ever happens in my life, I probably won’t participate, ”he said.
Butler said he appreciated being able to deliver a much-needed product, but said the blow to his bottom line has abated. “We still feel the financial pain of reducing so many end products or donating so many gallons,” he said. “We were able to help people feel comfortable and safe, but it was not economical. “