Impacts on Business Value Vary by Industry During the Pandemic

Impacts on Business Value Vary by Industry During the Pandemic
June 18, 2020 Paul P. Heidt
Business value

Business valuation

Impacts on Business Value Vary by Industry During the Pandemic

By Paul Heidt, ASA

With the economy in a recession, coupled with government-imposed ‘stay-at-home’ orders due to the Covid-19 pandemic, the business value of many companies, if not most, has decreased since mid-March.  While a majority of industries have at least felt the gloomy effects of the pandemic, some industries are seeing an uptick in sales and more positive forecasts.

Businesses that were forced to close or operate under heavy restrictions in many states, such as movie theaters, salons, fitness centers, and restaurants, have been negatively affected. Restaurants that were reduced to take-out only saw a sales decline of 78% from April 1-10 when compared to average sales, according to the National Restaurant Association.

On the other hand, some industries are thriving during the pandemic.  While fitness centers struggle to keep their doors open, suppliers of fitness equipment struggle to meet the skyrocketing demand as people exercise from home. Businesses deemed ‘essential,’ such as grocery and home improvement stores, have enjoyed sales increases during the pandemic. Sales in the grocery sector were up nearly 27% in March 2020 compared to the previous month[1] and Lowe’s, the home-improvement retailer, saw an 11.2% gain in comparable sales during the first quarter[2].

I recently completed a March 31, 2020 appraisal of a small landscape supply business that offers bark, mulch, soil, and rock products for residential customers. The company did not expect to be negatively affected by the Covid-19 pandemic. In fact, with more people at home working on their yards, the company’s sales increased in March 2020 compared to previous years as the demand for landscape supplies rose. As people continue to stay at home, management believed this could increase the demand for landscape products well into the summer as well. Given these factors, their value actually increased at the March 31, 2020 valuation date as compared to before the pandemic.

Even amongst industry sectors the Covid-19 pandemic has had differing effects on value. While retailers selling ‘essential’ goods, such as Walmart and the Home Depot, are thriving and their values have increased over the pandemic, those selling clothing, furniture, housewares, and other non-essential items have seen a drastic decline in value. Kohl’s, the department store chain, experienced a 41% decline in sales[3] during the first quarter and J. Crew, Neiman Marcus, and J.C. Penney all filed for bankruptcy during May.

There is no one-size-fits-all approach to valuing businesses during the pandemic. While values have declined for the majority of businesses we have appraised during the coronavirus pandemic, some companies have actually improved their value. Since the coronavirus pandemic affects each type of business differently, it will be increasingly important for business appraisers to examine its particular impact on specific companies and their individual industries going forward.

[1] “Grocery sales soar as pandemic crushes overall consumer spending,” Grocery Dive, April 16, 2020.

[2] “Home improvement sales surge during coronavirus pandemic, as Lowe’s experiences major jump in in-store and online spending,” Business Insider, May 20, 2020.

[3] “Sales soar at Walmart and Home Depot during the pandemic,” The Washington Post, May 20, 2020.

 

Paul Heidt, ASA is the Director of Valuation Research for Morones Analytics. He has substantial experience valuing closely-held businesses for litigation, gift and estate tax planning, marital dissolution, business transactions, reorganizations, and succession planning.

 To learn more about potentially valuing your business or about the other services Morones Analytics can offer you, please feel free to contact Paul Heidt, ASA at 503-906-1583 or paul@moronesanalytics.com

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