Economic snapshot: The state of local business

Pivot. If there’s one word repeated by Oakland County’s business owners across communities and sectors, it’s pivot. When Michigan shut down on March 26, 2020 to shelter in place and attempt to keep the spread of the coronavirus at bay, businesses of all types had to immediately rethink their operating models, especially those for whom interacting with the public – their customers – was an inherent part of business. Pivoting isn’t necessarily a bad thing. Many businesses that have been forced to get creative note that they will continue some of their programs post-COVID-19, whenever that may be. Said Sandy Baruah, president of the Detroit Regional Chamber, “Depending on the sector that you’re in, you’re either having a really strong experience, you’re holding steady, or you’re scrambling for survival or may have already succumbed to the virus.” For the local business community, it helps that Oakland County has a strong economic foundation. As Oakland County Executive Dave Coulter said, “We really are in many ways the economic engine of Michigan. We create more jobs and more GDP than any other county in the state. It’s not just important for Oakland County to do well for itself, but for the whole state.” Oakland County’s real GDP – gross domestic product – for 2018 was $101 billion, the highest in the state, and accounted for 21 percent of Michigan’s GDP for that year. According to the 35th Oakland County Economic Outlook Summary, presented in September by University of Michigan economists Dr. Gabriel M. Ehrlich and Donald Grimes, the U.S. lost 18.2 million jobs in the second quarter of 2020; it is estimated that in Oakland County, 156,100 jobs were lost, creating a spike in the county’s unemployment rate to more than 19 percent in April and May. As industries reopened, the county is forecasted to lose a total of 68,000 jobs in 2020. The majority of these job losses occurred in lower wage service industries that in 2019 made up 27 percent of Oakland County’s wage and salaried employment, including retail, nursing and residential care, leisure and hospitality. The anticipated unemployment rate for Oakland County in 2020 is 9.1 percent, in line with the U.S. unemployment rate expected to be 9.2 percent – up from 3.9 percent in 2019. With the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Oakland County was able to provide over $70 million in aid to over 15,000 businesses. However, both Coulter and Baruah said that more federal funding is needed for businesses to survive. “Another relief package is critical,” said Coulter. “The thing that propped up all of our efforts in Oakland County was that we had those CARE dollars. They were a lifeline to our local businesses, libraries, non-profits. Without another round of that funding, especially since we’re seeing our numbers on the rise again, we will not have the same economic success next year without that assistance.” Coulter is bullish on the county’s future, as evidenced in Oakland County’s recently unveiled strategic plan, which focuses on diversifying talent and economic development; it is the county’s first in 20 years. Coulter said that “our goal is to make sure that, while we have a great history of success in economic development, that we’re looking forward over the next five to 10 years. Our goal is for Oakland County to be a global destination for world class talent, investment and jobs.” While this year’s economy has been tumultuous, the strategic plan was nearly completed prior to the onset of COVID-19, and examines how changes in manufacturing, technology, and entrepreneurship will all continue to drive Oakland County’s economy in the years to come. All of this, of course, can only happen if the spread of the coronavirus is kept at bay. While Michigan had some of the highest numbers of coronavirus cases and deaths in early spring, the state’s numbers plummeted throughout the summer, attributed primarily to a number of executive orders from Governor Gretchen Whitmer’s office (which have since been overturned) that limited the size of gatherings, business occupancy, and mandated the wearing of masks at businesses. As the fall numbers spike and the state enters its “second wave,” the number of confirmed cases will directly impact how businesses continue to rebound. “The trajectory of the virus is going to have such a direct and significant impact on our economic recovery that it’s difficult to overstate that,” warned Baruah. “If we have a handle on the virus, and we’re able to manage the virus and it doesn’t spike again, regardless of what happens with the federal government, I feel pretty confident that we’ll see a nice recovery in 2021. If we can’t get a handle on the virus, I worry about a pretty significant economic challenge as we enter late 2020 and 2021. There’s enough to worry about for everyone.” Real Estate One industry that is having a positive 2020 is residential real estate. With everyone homebound and interest rates at all time lows, the housing market is booming. The average selling price for a home in Oakland County is up six percent from September 2019, and inventory is down, making it a competitive seller’s market. But according to James Christbrook, president of the Greater Metropolitan Association of Realtors, buying habits have changed. “COVID has really changed the mindset of people in so many ways, but the biggest thing in regards to houses is, there was a trend prior to COVID where baby boomers and Millennials wanted the same thing – to move into a multifamily condo or apartment where they were in town, close to everything. There was a lack of inventory for condos, a place where you could lock the door, go to Florida, and not have to worry about it,” Christbrook said. “When people were stuck at home for an extended length of time, they realized, ‘that’s not what I want,’ and very quickly, there was a shift back to the suburbs. They wanted a house big enough to have some space around them, a home office because so many people are continuing to work from home. That shift has caused a lack of inventory in a whole different product.” Christbrook points out that the luxury market is doing incredibly well, as buyers who are spending more time at home are “upsizing” instead of downsizing, finally purchasing their dream homes. According to RealComp, the number of new Oakland County listings in September 2020 was 27,736, down 15 percent from September 2019, when there were 32,674 new homes on the market. This lack of inventory is helping fuel an increase in the median home price, from $250,000 in 2019 to $264,900 in 2020. With 30-year fixed-rate mortgages having fallen below three percent – according to Freddie Mac, the average mortgage rate in January 2020 was 3.62 percent, while in September it had fallen to 2.89 percent – buyers have more money to spend. Madeline Dishon, president of the North Oakland County Board of Realtors, said these differences are palpable. “People are coming in and paying cash at all price points,” she pointed out. “That’s not stuff we’ve seen in a long time. I’m amazed at how much money people have. I have never seen financial statements like I’ve seen this year.” Additionally, agents note that buyers are waiving many of the contingencies common when purchasing a home, including those for inspection and appraisal values in order to secure the sale. When realtors were allowed to resume in-person work in May after their stay-at-home order expired, they had already missed some of what was traditionally Michigan’s peak season for home buying. That has fueled a market that they anticipate to remain strong throughout the winter. Said Dishon, “It’s still a feeding frenzy. It has not changed since we were able to get back to work. We might slow down near the holidays, but the buyers won’t go away. I’d expect it to remain this way for all of next year.” This strong market has also increased employment opportunities at a time when jobs are scarce. Christbrook commented that he’s seen many who had lost their jobs become (real estate) agents during this time – ”some months, it’s been 120, 130 new agents” who have become members of GMAR, the largest realtor association in the state. They are nurturing their membership and those new to the business by offering expanded educational events online. On the commercial end, with many employees still working from home, the need for office space has dwindled. However, with office tenants typically holding long leases (a small business lease may be three to five years, while larger companies will often be seven to 10), the commercial leasing market isn’t changing overnight. Friedman Real Estate’s Jared Friedman said that 94 percent of their tenants across their portfolio have paid their rent. However, he said, “the bad news is there’s really no one in the buildings. Of our 10 million square feet of office space, there’s only about 27-28 percent of the people who lease space who are in the building on a daily basis. Some buildings are completely empty.” For those who have had to return to the office, his construction and design team has been hard at work reconfiguring existing office spaces to comply with social distancing requirements. “The density of the office user was everyone next to each other, sharing desks, an open, collaborative space.” To “COVID-ize” the office, Friedman said, they’ve helped their tenants put up plexiglass dividers, safety signs near elevators and common areas, and reconfigure existing spaces. Friedman said they’ve put up around 20,000 dividers thus far. While Friedman said that “you will see increased vacancies over the short term, 24 to 36 months in the office market,” he has witnessed that people are missing the connectivity and collaboration inherent in a shared work environment. When they do reconvene, though, their office location may have changed, with urban high rises less desirable than they were just 12 months ago. Friedman is seeing a boom in properties in Troy, Southfield, Livonia and Farmington Hills, with parking lots instead of structures, multiple entrances, and stairs. Ingrid Tighe, executive director of the Birmingham Shopping District (BSD), sees towns like Birmingham becoming even more attractive to office workers as work life changes. “We are a downtown. We don’t have 10,000-people corporate offices. The advantage that Birmingham offers is small to midsize office space,” that will favor the “new normal” of a mix of in-person and remote work. Fitness Industry The 2010s saw a tremendous amount of growth for the fitness industry. According to the International Health, Racquet & Sportsclub Association (IHRSA), health club memberships in the United States reached an all-time high of 64.2 million people in 2019, representing a 28 percent increase since 2010. While gym memberships notoriously do not always translate to visits, those too saw record numbers in 2019, with more than 73 million people visiting a fitness facility for a total of 6.7 billion visits, according to the 2020 IHRSA Health Club Consumer Report. Of course, those numbers would come to a screeching halt in March 2020, as workout facilities were quickly singled out as bastions of germs and potential sites for coronavirus spread. Here in Michigan, these businesses were closed for six months, one of the last industries to be allowed to reopen under Governor Whitmer’s executive orders, as well as one of the last states in the country to allow these businesses to reopen. Alyssa Tushman of Franklin, the owner of BURN Fitness, which has three locations in Rochester Hills, Livonia and Clawson, co-founded the Michigan Fitness Club Association in the midst of the pandemic. Like many fellow associations that were founded across the country, Tushman, who is MFCA’s vice chair, described the attention paid to the restaurant, airline, and hotel industries, and didn’t see her industry represented. In particular, she described the unfair “stigma” placed on gyms, when in reality she said that even before the pandemic, modern fitness clubs had invested in superior HVAC systems, regular cleanings, and many have high ceilings. Importantly, “we contact trace by nature. We’re membership based, so every single person who comes in and out is traced and known,” she said, an important feature should someone becoming infected with COVID-19. In addition to knowing exactly who has entered the facility and when, Orangetheory Fitness owner Scott Marcus noted that at his eight locations across metro Detroit, they can contact trace down to the exact piece of equipment an individual was on during their visit, as each person is assigned to a spot for the duration of the class. While the majority of gyms and fitness studios were counting the seconds until they could reopen, several will stay closed for good, including Fuse45 (which will continue virtually), West Bloomfield’s Jewish Community Center health club, the Livonia YMCA, and several more. IHRSA reports that 4,000 studios have closed their doors so far, and it is predicted that 20 percent of fitness facilities nationwide may close by the end of 2020. And while earlier this spring there were multi-month waitlists to purchase Pelotons and other in-house gym equipment, Tushman said that overall activity is down 48 percent. This is particularly concerning, as Tushman pointed out that being overweight is a significant metric for those who get sick with the coronavirus, and encourages physical activity of any kind to maintain a healthy lifestyle and combat stress and anxiety during these unknown times. As with all industries, studios got creative during their months-long closure, bringing classes online and outdoors. Local franchises of national chains like The Barre Code, which has locations in Birmingham and Royal Oak, and Orangetheory, which has locations in Birmingham, Troy and Farmington Hills, had the benefit of being a part of a larger parent company to help guide them through both being closed and reopening. While some studios struggled to quickly adapt to making their workouts available online, unclear as to the demand, those which benefited from a larger network found it easier to pivot to offering their classes online, as they did not have to invest in their own digital infrastructure. Orangetheory’s Marcus noted that their classes encouraged people to use whatever they had available – ”a bottle of detergent, a baby, luggage” – in their free daily classes, a way to make workouts seem more attainable despite taking place in atypical settings. Taking the workout outdoors also helped studios through their closures, as they could host socially distanced workouts in their parking lots or local parks. Lindsay Irrer, co-owner of The Barre Code metro Detroit’s locations in Birmingham, Royal Oak, Rochester Hills, and Northville, said that some of their Birmingham classes had upwards of 100 people. While the cooler temperatures make it unsafe to continue these outdoor workouts, Irrer says that “moving forward, both virtual and outdoor classes will always be a component of our program because it has truly been so enjoyable.” But now that gyms are open, will people return? IHRSA, in partnership with MXM, has published their “visit-to-virus” ratio tracker data, which shows that of more than 49.4 million visits to health clubs around the country, only .002 percent have tested positive for COVID-19 between May 1 and August 6, 2020. Marcus said that across Orangetheory’s 1,200 studios, 85 to 90 percent of clients have returned within 90 days of reopening. Nancy Hodari, who owns Equilibrium Pilates in Bloomfield Township and downtown Birmingham, estimated that already, about 75 percent of her clients have returned in person, with closer to 85 percent at her Bloomfield Township location. Just like clients, staff, too, need to feel comfortable returning. Said Irrer, “The majority of our team was ready and raring to go, but just like the general population, we do have some who have underlying conditions. We have a lot of young moms and those who are expecting who may not be comfortable coming back. We pour a lot of energy into training our instructors, so to be navigating everything, and working without our complete staff, is challenging.” Some of Equilibrium’s instructors are continuing to teach virtually from their homes, while Tushman and Marcus noted they have lost staff to other industries, with Marcus stating that about 15 percent of his approximately 100 employees did not return. Irrer pointed out another new challenge to her operations. “We had our schedule pre-Covid down to a science. We knew where our busy times were. But everyone’s work and family lives are so turned upside down that the times people work outs have changed, too.” Hospitality Industry One of the industries hardest hit by the pandemic has been hospitality. With restaurants reopening in early June, albeit at half capacity, restaurants expanded their outdoor dining in order to serve more customers in a distanced, open air setting. Many cities allowed for restaurants to add tables on sidewalks or in parking spaces as a way to space tables and allow for social distancing. Downtown Royal Oak closed off 5th Street to traffic, allowing for restaurants to expand their dining even more. Yet, unfortunately, Michigan’s outdoor dining season is a brief one, and the Michigan Restaurant & Lodging Association (MRLA) said that 27 percent of the state’s restaurant operators predict they will not be in business in six months without additional federal assistance, and three-quarters do not anticipate that their business will be back to pre-COVID levels in the next six months. As such, the MRLA launched their “Don’t Leave Michigan’s Hospitality Industry Out in the Cold” campaign in September to advocate for expanded reopening measures. The MRLA is “focusing on financially helping our restaurants and hotels through winterization grants,” as well, according to Emily Daunt, vice president of communications and operations. Beth Hussey, co-owner of Hazel, Ravines & Downtown (HRD), has had a double whammy against their restaurant this season. The 10,000 square foot Birmingham restaurant was one of the few in the downtown that does not have outdoor dining, and the construction project that shut down Maple Road was right at their doorstep. The barely two-year-old restaurant was forced to get creative. After a wildly successful lobster menu in summer 2019, and a similar Florida stone crab-themed menu in January and February 2020, HRD had decided that they would rotate menus of fresh, seasonal seafood. Yet while many restaurants immediately transitioned to serving carryout in mid-March, HRD initially closed completely. When they did reopen for carryout in May after receiving a Paycheck Protection Program grant, Hussey focused on how the food and packaging would recreate a restaurant experience, not wanting to compromise the way their food tasted just because it was being wrapped to go. They decided to reopen serving one dish – lobster rolls. Diners could order single rolls, two packs, or a kit to make the rolls at home. On their very first day open, they sold 1,000 lobster rolls, with a line down Woodward to 14 Mile Road. “We were selling more in carryout in lobster rolls than we would in some normal weeks pre-pandemic,” Hussey said. They then expanded their menu slightly, creating picnic baskets with seafood and fried chicken to feed a family. One devoted staff member even delivered the meals directly to people in Birmingham’s Shain Park while wearing a lobster suit, her own personal form of PPE. As the cooler weather settles in and diners are forced indoors, Hussey sees her large space as a draw. With a normal capacity of 250, and separate areas traditionally used for private dining, HRD will be able to spread diners out naturally. Also in development are small scale catering packages, especially around the holidays, delivered straight to a host’s door. It’s “bringing the restaurant experience to you,” Hussey said of the “full service experience” where HRD staff will set it up, serve, and clean up. While Hussey said that the culmination of all of these pivots has made her business more profitable, updating restaurants for carryout and weather do not come cheaply. The Roberts Restaurant Group is in the process of winterizing the patio at Bloomfield Township’s Roadside B&G and downtown Birmingham’s Streetside Seafood. While owner Bill Roberts’ restaurants, which also include Beverly Hills Grill, Cafe ML and Bill’s, have always offered carryout, he is in the process of implementing online ordering platforms on each of their websites, a cumbersome, but necessary task to increase efficiencies. According to MRLA’s September COVID-19 Restaurant Impact Survey, 62 percent of the state’s operators say that their total operating costs are higher than they were prior to the pandemic. Roberts’ restaurants have also seen their traffic affected by the lack of business breakfasts and lunches, a staple for Beverly Hills Grill and Bill’s, travel to and from the airport at Beverly Hills Grill, and for Streetside Seafood, the nearby construction on both Maple Road and at the former site of The Varsity Shop, which abuts the restaurant. As one of metro Detroit’s most seasoned restaurateurs, Roberts has altered his restaurants’ hours to reflect these changes in consumer behavior, and tightened his menus to streamline both in-person dining and carryout. The hospitality industry is Michigan’s second largest employer, employing an average of 700,000 annually; approximately 200,000 are still out of work. For those who work in this high risk industry, reopening their businesses safely has been an ongoing challenge. According to Susan Keels, general manager of the Royal Park Hotel in Rochester, they initially laid off approximately 125 employees when they decided to close the hotel earlier this spring. So far, they’ve been able to bring back about 90, strong numbers considering two out of three of Michigan’s hotels currently have occupancies of less than 50 percent according to the MRLA. At the Royal Park, their corporate travelers, what Keels calls their “bread and butter,” is currently between 10 to 20 percent occupancy, down from 70 percent. “On the flip side,” she said, “what we’ve been seeing is an increase in the local leisure market, those within a 300 mile drivable radius. The weekends are between 80 to 90 percent, and we sold out a weekend recently.” The other main economic driver for hotels like The Royal Park are events like conferences and weddings. Initially, noted Keels, couples were postponing their celebrations by a few months. “When the pandemic started, 85 percent of brides and grooms wanted to move their weddings, so we moved everything into summer and fall.” She said that many weddings have now been moved two or three times, but some smaller, more intimate gatherings have occurred in their outdoor spaces, and will continue especially now that they are no longer restricted to only being allowed to host 10 people in their 10,000 square foot ballroom. However, many of the key elements of a wedding have had to change, from crowded dance floors to buffet sweet tables and passed appetizers. “The mingling has been challenging. When you’re standing up, you have to wear a mask. People have to drink sitting down at tables, and dancing with a mask on at your table instead of the dance floor,” a feature that has been removed completely. She anticipates a soft first quarter of 2021 for these types of events as clients hold out hopes for a return to some normalcy by later in the year. Thanks to an investment in technology and connectivity that had been put in place prior to the pandemic, the Royal Park has been able to host some small business gatherings, including a tech company that had attendees in-person at the hotel, as well as streaming from London and China. They have also sold some day packages for those who need to get away from the distractions of their work from home setting, a trend Daunt at the MRLA has seen statewide, and have seen the return of a handful of business travelers. “Travel as we know it and the pattern of our guests has completely shifted,” said Keels, saying that some business travelers who would previously stay for one to two days are now staying for an entire week or even two as they consolidate their travel. The hotel has added lots of socially distanced programming to cater to the local market and make up for the lack of traditional customers, including a “vertical” summer concert series where some of the audience watched from balcony suites, plein air painting in partnership with the Paint Creek Center for the Arts, and dining at fire pits, cabanas, and outdoor snow globes. Keels reflected on the pivots the hotel has made. “It’s the high touch that we’re all about in the luxury market. How do we continue to give the guest a great experience while keeping them safe? Piece of mind is now the new luxury.” The local area’s other luxury hotel, The Townsend Hotel in Birmingham, declined to be interviewed. Retail As for the retail segment of the business community in the county, retail has also been hit hard by COVID-19. While grocers and home improvement stores saw their businesses increase this spring and summer, locally owned mom and pop boutiques have had to reassess their business models. Noted Joe Bauman, president of the Birmingham Bloomfield Chamber of Commerce (BBCC), “It’s the ripple effect of working from home. There’s a whole economy that is supported by having a workforce in offices. It’s the barber shops, the drugstores, the restaurants, the dry cleaners, who are all really struggling because of that.” Additionally, for local downtowns like Birmingham, Rochester, and Royal Oak, events are key drivers to bring people into stores and restaurants. The majority of them, like the Village Fair that traditionally brings 20,000 people to downtown Birmingham over a four-day period every June, was cancelled, eliminating the foot traffic that supports businesses in walkable communities. According to the Economic Outlook Summary from the University of Michigan, consumer spending fell by over 40 percent in Oakland County in late March/early April as compared to its January average. By mid-April, around the time of the passage of the CARES Act, a rebound began. Across Michigan, consumer spending recovered to its pre-pandemic levels by the end of May, staying above or near that ever since. Meegan Holland, vice president of marketing and communications for the Michigan Retailers Association, said of this trend, “very puzzlingly, Michigan consumers have been spending more than any other state in the nation. Even the experts are puzzled by that.” This “in-Michigan spending” is imperative, as in a typical year, she said that we send about $18.5 billion to conglomerates like Amazon and Wayfair, a number that has increased over the past nine years and is sure to climb even higher as the pandemic continues to drive even more shopping online. To stay competitive with online shopping, Bauman says that about two years ago, the BBCC encouraged retailers to boost their online presence and shopping platforms. “The good news is that I don’t think too many of the bricks and mortar retailers were having to start from scratch.” What many did add was curbside shopping, with downtown Birmingham adding five minute “buy and fly” parking spaces so that shoppers can either quickly park and pick up a purchase made over the phone or online, or have it delivered straight to their car by the merchant, which has taken some of the bite out of the loss of business due to the state lockdown and a Maple Road construction project that is finally nearing completion. The Royal Oak Downtown Development Authority even allocated funding for “Downtown Dollars,” providing $20 gift cards totaling $500,000 for people to spend at over 70 retailers and restaurants. Tighe of Birmingham’s BSD points out that some retailers are doing very well, like Lululemon, Moosejaw, and Gazelle Sports, reflecting the more casual and comfortable at home lifestyle adapted over the past seven months. Jewelry, menswear, and luxury designer clothes stores have seen a steep decline in business, with some now only open only by appointment, and five stores have closed since the pandemic began. Those spaces, however, are quickly being replaced, with the recent opening of stores like Johnny Was, and ongoing talks with some national chains who are finding an outdoor downtown “more appealing” than a mall, she said. Said Holland, “I’m hearing people say, ‘I don’t want to look at my downtown and see empty storefronts, so I have to shop at these stores.’ That’s huge. That could truly save your favorite store if you just make sure to go there instead of shopping online for the convenience or to save a few pennies.” Holiday shopping is always a huge economic driver for retail, with many stores saying it can account for one-third of their annual revenue. While many stores were hurt by the lack of back-to-school shopping, their second busiest season, stores throughout the region are starting the holiday season early. They’re adding inventory earlier, a proactive approach in case the supply chain is impacted as cooler weather sets in and coronavirus cases rise. Shipping delays are expected to continue, affecting both the speed at which goods make it into stores, as well as a customer’s home. Holiday programming and festive decor and lights will also enhance the shopping experience in Birmingham and Rochester, enticing shoppers into stores with programs like Birmingham’s The Great Decorate, where shop owners compete in a tree decorating contest, with funds supporting local foster children. Regular “prime” shopping days will roll out in downtown Rochester, including “Plaid Friday,” which replaces Black Friday, and the Kris Kringle Market. “Brick and mortars of locally owned, independent retail operations are all about the customer relationship and the customer experience,” shared Bauman. “Whatever environment we’re in, people are still going to crave that and want that. It makes a place like downtown Birmingham, downtown Franklin, unique experiences.”