Click to read the original text for details Small shops are an indispensable part of a city and a microcosm of the social economy. "If the pandemic hasn't passed by May, what will happen to individual businesses?" a Zhihu netizen asked. Now, it's already the end of July, and during this period, there has been no shortage of news like "25 shops on a street less than 500 meters closed down." Individual businesses, on the eve of dawn, are burdened by rent and utility costs until their cash flow breaks,陷入困境, and loans may become their only means of self-rescue. Data shows that China has 150 million individual business practitioners, including 64.43 million in wholesale and retail, and 22.35 million in accommodation and catering, totaling 86.78 million in these two sectors. According to the Fourth National Economic Census, the number of individual businesses has grown rapidly, exceeding 62 million. Individual businesses have become a link in the entire social economic chain. If a large number of them cannot sustain, the entire economic industry chain will suffer a chain reaction, not only the consumer end but also all upstream links, causing unpredictable negative impacts. Recently, the Ministry of Commerce and six other departments issued the "Notice on Carrying out the Action to Promote the Small Shop Economy," stating that by 2025, 1,000 small shop clusters with vibrant atmosphere and strong "fireworks" will be formed, achieving the goal of "100 cities, 1,000 districts, 100 million shops." -01- What is a small shop? The "National Small Shop Economy Development Guide" attached to the Notice clarifies the connotation of small shops: small shops are small-scale stores, mainly registered as individual businesses or micro-enterprises. According to the National Bureau of Statistics' "Statistical Classification of Large, Medium, Small and Micro Enterprises (2017)," small shops typically refer to individual businesses in wholesale, retail, accommodation, catering, household services, laundry, beauty and hairdressing, repair, photography and printing, delivery services, etc., with fewer than 10 employees or annual turnover below 1 million yuan, as well as online stores with annual turnover below 15 million yuan. These small shops, closest to people's lives, not only support the owners' entire income but also form a huge and complex link in the national economic chain. A set of data shows that in 2018, there were nearly 100 million individual businesses (with business licenses) nationwide, with a turnover of 13.1 trillion yuan, accounting for about one-third of China's consumer goods retail. About 230 million people depend on individual businesses for their livelihood. If 20% of these 230 million people cannot sustain, it would release up to 46 million people needing to find new livelihoods; even if only 10%, 23 million people's lives would be affected. According to the statistical yearbook, the average annual wage in 2018 for private enterprises in catering and wholesale/retail was 39,600 yuan and 45,000 yuan per person, respectively. If individual businesses in these two industries experience income decline, it will have a huge impact on practitioners' income. For example, if monthly income is affected by 10%, with a consumption propensity estimated at 70%, the monthly consumption impact could be around 20 billion yuan, dragging down the growth rate of total retail sales of consumer goods by about 0.6%. But this sudden pandemic has dealt a suffocating blow to individual businesses. The catering, hotel, and off-campus training industries went into immediate shock. The retail and other service industries, after a month-long shock, have resumed in some places but are still recovering with dismal business. The sudden halt of "small shops" not only brings pressure from rent, utilities, and labor costs, but also unsold goods during the pandemic, preventing capital recovery—these are the last straws that break many individual businesses. Looking back, even chain stores found it hard to withstand the huge pressure on cash flow, with declining sales and shrinking cash flow, and many enterprises unable to operate normally. In the first half of this year, the impact on chain stores was mainly threefold: first, epidemic prevention departments banned labor-intensive enterprises from full resumption to avoid cross-infection; second, severe labor shortages meant that even if enterprises resumed, they could not return to normal production scale before the pandemic ended; third, due to road closures and city lockdowns, the trunk logistics for procurement and inbound goods was affected, making it difficult to connect with suppliers outside the region. If chain stores are like this, what about individual businesses? An industry insider told "Ling Shou" that the main difficulty for individual merchants is cash flow disruption. On one hand, business has significantly decreased or even completely stopped; on the other hand, many expenses have not decreased, and labor, rent, and interest payments still need to be paid. Small merchants have limited capital reserves and often become insolvent under the pandemic's impact. Additionally, according to a report on individual businesses, affected by the pandemic, during the first month of the lunar year, the number of active individual businesses nationwide decreased by 40.4%, and turnover decreased by 52.4%. Based on the total number of individual businesses, the pandemic caused a decrease of about 39.497 million active merchants in those two weeks, with a reduction in turnover of about 264 billion yuan. The small shop economy is a microcosm of the social economy. -02- Ant Financial's recent data shows that among over 20,000 small and micro merchants, about 80% have funding shortages, and of these, over 70% can survive through financing. In other words, if they cannot obtain financing in time, these 70% of merchants may close. Even if they resume operations later, they may face unsustainable difficulties. From the perspective of China's employment distribution and average wages, consumption may decline due to insufficient consumption by low-income groups, causing income for low-income workers in catering and retail to fall, forming a negative feedback loop in the short term. Therefore, many professionals judge that it is difficult for consumption to recover to the 2019 growth rate. From the street stall economy to the "small shop economy" becoming popular, there is indeed huge market space and a new trend. Especially in solving employment for groups with low education, low income, and low security, the loss of income for "small shop" owners will affect their normal life and consumption, which is not conducive to restoring economic growth momentum and social stability. In addition to existing employment pressure, new employment also faces significant pressure. About 7 million new college graduates need jobs each year, but due to the economic slowdown caused by the pandemic, new job opportunities have also decreased. Under pressure, small shops can help release inventory pressure upstream, relax the upstream supply chain channel, and indirectly contribute to national tax revenue. On December 30, 2019, Premier Li Keqiang said at a State Council executive meeting: "We should develop the 'small shop economy' with more targeted policies, create more job opportunities, and promote the formation of a number of pedestrian streets with vibrant atmosphere, strong characteristics, and cultural heritage." On June 1, 2020, during an inspection in Yantai, Shandong, Li Keqiang again stated that the small shop economy is an important source of jobs, the fireworks of the human world, and like "high-end and grand" businesses, it is China's vitality. Data shows that by 2025, 100 pilot cities (districts) for the small shop economy will be cultivated, 100 enabling service enterprises will be empowered, and 1,000 small shop clusters with vibrant atmosphere and strong "fireworks" will be formed, achieving the goal of "100 cities, 1,000 districts, 100 million shops," making small shop entities stronger, ensuring people's employment, and further enhancing economic resilience and vitality. Based on this trend, "Ling Shou" invited dozens of industry leaders to the "2020 China Retail Innovation Summit - and Small Format Development Conference · Season 6" held on August 16, to interpret how to view changes and make changes in the new situation. Convenience store formats such as Good Neighbor and Anda Convenience also started as small shops and grew into regional chain giants. They will share related topics at the conference. According to the "National Small Shop Economy Development Guide," four types of enabling service enterprises are summarized: e-commerce service platforms, logistics service enterprises, commercial service enterprises, and central kitchens. The conference partner, Chuangjiyun, is an enterprise that has developed retail management systems for many years, supporting retail chain groups across formats, regions, and industries, providing solutions for unified procurement, unified distribution, unified pricing, and regional management. -03- "Cash flow" has become a major problem for small shops during the pandemic. In difficult times, loans can be said to be the "lifeline" for small and micro enterprises and individual businesses. Although the state has introduced a series of financial relief policies recently, due to small scale, imperfect financial systems, weak risk resistance, and lack of fixed asset collateral, small and micro enterprises and individual businesses are relatively disadvantaged in the financial market, with poor access to financing. Turnover has decreased, but rent and wages still need to be paid, and loans must be repaid on time. Coupled with financing difficulties, this is a common problem for small and micro enterprises and individual businesses after resuming work. Currently, China's financial institutions mainly provide assistance to small and medium-sized enterprises with poor risk resistance. Due to unpredictable and preventable credit risks, it is difficult to provide financing convenience to smaller individual businesses. This forces individual businesses to face difficulties alone, and the capital chain problem can basically only be solved by themselves. These capillaries at the very end, which are an important link supporting the national economic chain, are hard to get corresponding "care." Currently, many retail giants are eyeing the small shop business, wanting to take advantage of the period after the pandemic when small shops have not yet recovered, to expand and seize more favorable positions, developing fresh food small formats or convenience stores. Regarding the development of the small shop economy, Tao Ye, general manager of Good Neighbor, said that in the short term, it increases competition, but in the long term, it attracts more practitioners into the commercial field, especially community services. They ultimately lack systematic backend support and need more professional services, so we are optimistic about the long-term development of convenience stores. Small shops are an indispensable part of a city and a microcosm of the social economy. We must not let small shops fall. Source: Ling Shou (ID: lingshouke) Author: Shi Li