Imani Watts and Alex Hadley, both 24, had always been interested in thrifting and fashion. In the spring of 2020, they had a chance to take over a space where a thrift shop had to shut down because of the pandemic, and turned their interest into a small business – Bazaar Los Angeles.
First Watts and Hadley started rebranding the thrift store, but the idea grew and it turned into a space where different clothing brands, mainly small businesses operating online, could showcase and sell their creations.
“From there it went to the idea that the whole store should feature brands that operate mostly online,” Hadley said. “Just to give them a space to grow brands, to give them more exposure, for their customers to come in and actually try on the clothes and touch them before they buy.”
Bazaar Los Angeles was one of the start-ups that boomed during the first two years of the pandemic. Black entrepreneurs like Watts and Hadley made up a disproportionately large share of that boom.
But now, as the economy slows down and some economists predict a downturn, these businesses have to readjust in order to weather the coming hurdles that Black businesses historically have faced more than their white counterparts.
“They’ve always been in survival mode,” said Tracey Jeffries Clark, founder of Capital Consulting Service and doctoral student of business administration at University of Missouri, where her research focuses on sustainability of black-owned businesses.
Analysts aren’t sure why there was such a striking increase in Black entrepreneurship during the pandemic. By the end of 2021, Black-owned businesses in the U.S. were around 28% above pre-pandemic levels, according to one research study. Some experts suggest the racial reckoning after George Floyd was killed in May 2020, accounted for more support of Black-owned businesses.
Another likely factor: government support. One study suggests that stimulus checks played a major role in new Black-owned business formations. Researchers at Columbia, MIT and other universities looked at business registrations by Zip codes in eight states, including Washington, Georgia, Florida, New York, Vermont, Kentucky, Tennessee, Texas and mapped startups in 2020 and 2021. They found that new business registrations were especially increased in mid-income Black neighborhoods, as the financial aid made the residents’ future less precarious for a while. The aid guaranteed the kind of access to finances that otherwise would have been difficult for them to gain.
Catherine Fazio, faculty director of M.B.A. programs at Boston University and one of the researchers, said the geographic patterns suggested that government aid was helping to remove hurdles.
“To us it looked like pent up potential that can be unleashed when gates, that may have been existing in the past, are lifted,” Fazio said.
Experts warned that the boom in Black-owned businesses comes with some caveats, though. Some of these entities are small teams or just one person who might be struggling.
Quentinoa Agnew, established her own recruiting company in St. Louis in 2020. She has invested her one money in it and had some successes finding employees for her clients. But lately it’s been hard for her, her business isn’t generating revenue so she had to find part-time gigs like delivering or serving food.
“I had to wonder this weekend: ‘Do I need to close up my business?” she said.
Black-owned businesses, even when they are doing relatively well, still have some of the vulnerabilities that existed before the 2020-2021 stimulus, making them more prone to succumb to economic downturns.
Historically, minority-owned organizations have faced problems such as low cash reserves, smaller payroll and difficulty to access credits more than their white counterparts. And often their future was more precarious.
According to the 2019 Federal Reserve System Small Business Credit Survey, Black entrepreneurs thought their businesses were at significant risk of failure in case of were possible downturn than their counterparts. 58% of African-American respondents shared that their businesses either were at risk or distressed, compared to 27% of white owners.
Access to capital has been one of the major issues the minority-owned businesses have been dealing with in the past. According to the 2019 Federal Reserve Small Business Credit Survey Report on Minority-Owned Firms, 69% of Black businesses said they had been rejected or received less amount of credit than they had asked for. Only 38% of white respondents had that problem.
Black-owned businesses have also failed at greater rates than white-owned businesses.
During the most recent, pandemic-era recession in 2020, Black-owned businesses closed twice the rate of other businesses, with a 41 percent drop, according to the New York Fed.
“Those sources and resources are still kind of hand-tied,” Clark said. “Yes, a lot of those small businesses are starting at record numbers, but sustainability is the challenge.”
Some Black entrepreneurs seem confident in their resilience ahead of possible economic downturn or recession According to preliminary results of Census Bureau’s Annual Business Survey, by the end of 2022, 48.5 percent of Black business owners expected the operations to continue at current level or grow, 29.9% thought it would continue at the current or below level and only 4% thought they wouldn’t survive.
But owners, including those who have been managing companies even before 2020, are aware of the hurdles and are preparing to take steps in case of a downturn.
“I’ve given much thought to protecting our future and we’ve implemented measures to safeguard our business and ensure its resilience in the face of economic downturns,” said Sheila Hudson, president and CEO of Hudson and Associates, that works with municipalities and airports specializing in operations and program management services across the country and has been in business since 2005.
“Scaling back is the last thing I want to do, but I know I have to be prepared to make those tough calls,” she said.
Imani Watts and Alex Hadley, who are newer entrepreneurs, so far have been having success since launching Bazaar Los Angeles. They started with seventeen brand partnerships and currently work with fifty. However, they are also feeling the brands becoming more cautious with subscription type partnerships.
“It’s harder right now to find those brands and to solidify them because they are not able to afford it right now,” Imani said.
They have been thinking about next steps to cut some costs but stay in business, such as moving the entire store online.
“So then that would give us the chance to just focus on getting the brand the exposure through, instead of the physical store,” they said. “Although it kind of defeats the purpose of why we wanted to have a physical location with giving the customers an experience to try on the clothes, it still caters to the second part of our business, which is providing a platform for small businesses to sell their things.”