Small Businesses Fear Collapse as Israel Heads Into Second Lockdown

Many store owners and restaurateurs are threatening to defy orders if they do not receive government financial compensation

Adi Dovrat-Meseritz
Adi Dovrat-Meseritz
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Closed shops are seen in Jerusalem, July 26, 2020.
Closed shops are seen in Jerusalem, July 26, 2020.Credit: Eyal Toag

Six months have passed since Israel declared its first coronavirus lockdown to the day the second one is due to go into effect. In the meantime, many small businesses have taken out loans, cut costs and delayed payments to suppliers and landlords. They don’t have many more rabbits to pull out of their hats.

In conversations with business owners last weekend, conducted over Whatsapp groups established during the first lockdown, many said they weren’t sure what to do now – to rebel by keeping their businesses open or to tell their landlords they simply can’t make rent.

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Some demonstrated Saturday night, while others opted to appeal directly to cabinet ministers in the hope of convincing them to vote against the lockdown.

“I still haven’t decided what I’m going to do, but many businesses on my street have already said they plan to open because if they don’t, they’ll go under,” said the owner of a store on Tel Aviv’s Ibn Gabirol Street. “The government doesn’t understand that businesses will fail. Another month like this, it’ll all be over. People who have nothing to lose will stay open.”

As the cabinet was debating the terms of the planned lockdown scheduled to start Friday morning, economists speculated about economic costs. Meitav Dash chief economist Alex Zabezhinsky said he expected the impact would be smaller than the first lockdown, in part because many businesses have increased their online activity and the government is better prepared to help those in trouble.

But he cautioned that the pain would not be evenly spread. “The world [this time] isn’t in lockdown, so activity connected with overseas isn’t expected to be harmed. And, because we have the experience of the first lockdown, the level of uncertainty is expected to be lower and have less of an effect on activity, except for consumer spending,” said Zabezhinsky.

Closed shops at a local market in Jerusalem, March 22, 2020.
Closed shops at a local market in Jerusalem, March 22, 2020.Credit: Ohad Zwigenberg

Thus, the biggest casualties of the second lockdown are likely to be small businesses.

The market research firm Czamanski & Ben Shahar believes the second closure will be more damaging than it had predicted two months ago. A lockdown in the format that’s being planned will lead to the collapse of 5,000 more businesses than the firm had forecast in July, said Efrat Segev, the firm’s head of macroeconomic research.

She estimated that 85,000 businesses will close this year, versus 40,000 in a normal year. In addition, the number of new businesses formed this year is expected to drop to 30,000 from the usual 50,000.

Czamanski & Ben Shahar estimates that the second lockdown will cause revenue losses of between 600 million and 800 million shekels ($173 million to $231 million) for restaurants, cafes and the like, based on the assumption that annual turnover of between 18 billion and 19 billion shekels (not counting value-added tax) in an ordinary year.

For apparel and other nonfood retail businesses, including clothing and housewares (but not supermarkets), lost revenue will run at 5 billion shekels a month in a market that usually has an annual turnover of 50 billion to 55 billion annually (without VAT).

Some restaurant owners have already announced they don’t plan to shut down. Tomer Mor who heads the organization Restaurateurs Stronger Together, which numbers 100 businesses, has already thrown down the gauntlet. He said that the only way his group’s members would agree to close is in exchange for government financial compensation, and only if it is delivered within days after the closure begins.

A restaurant that closed in Tel Aviv due to the coronavirus crisis, July 2020
A restaurant that closed in Tel Aviv due to the coronavirus crisis, July 2020Credit: Meged Gozani

Shai Berman, the head of the Association of Restaurants and Cafes, the main industry trade group, estimates that 25,000 workers will be put on unpaid leave or dismissed outright.

Some fitness center operators have also said they will defy lockdown orders. However, it appears that the big gym chains will abide by the rules.

Shopping centers and apparel chains made it clear that they don’t plan to join the rebellion as they did at the end of July when they were ordered to close shopping centers on weekends. The fashion chains are already preparing to put employees on unpaid leave and talking with mall owners about getting reductions in rent and management fees.

Last spring, during the first lockdown, they exempted tenants from rental payments so long as the malls were shut and when they reopened gave them discounts. As a result, the big mall operators – Azrieli Group and Melisron suffered losses while the big apparel retailers had improved earnings.

Melisron has already informed some tenants that will suspend rent so long as its malls are closed but that it will insist on management fees that average about 75 shekels per square meter in enclosed malls and 30 shekels at strip malls.

“I’m not interested in what the malls demand,” said one retail executive, speaking on condition of anonymity. “If I’m not operating, then I’m not paying. ... The big question is who will still be in business after this lockdown. Many businesses are going to collapse – the second round will be a lot harder.”

Said Avi Schumer, CEO of the bookstore chair Tzomet Sfarim: “The first time around, our situation was a lot better because the landlords weren’t taking rent or management fees, the government suspended municipal taxes and we put our employees on unpaid leave,” he said. “But property owners aren’t going to concede again, and I understand their position.”

A mall executive explained his position. “I don’t know how long the malls will be closed and the state won’t be compensating us – the only money we’ll get is from tenants,” he said.

Like many others interviewed, Ronen Nimni, who owns the Cafe Cafe chain, expressed disappointment without how the government has been acting during the crisis.

“We’re heading for economic disaster. I don’t think the ministers or top officials really understand is going to happen here,” he said. “We helped our franchisees with loans and by stretching out payments, and most of them somehow stayed afloat. Another month without cash flow will be a catastrophe. Suppliers won’t keep up delivering goods if they aren’t getting paid again. Only those with deep pockets – and there aren’t many of those in the restaurant business – will be able to get through it.”

With reporting from Shelly Appelberg.