KEY POINTS

  • B2B spending in May was off 12% from year-ago levels despite increases in spending and industrial production
  • IT represented a bright spot as more businesses turned to digital platforms to survive and companies sent their employees home to work
  • Supply chains need to be overhauled to correct the bottlenecks that have become apparent

Though the U.S. economy has shown some positive signs during the coronavirus pandemic, the recovery may be more drawn out than the Trump administration would like if business-to-business spending is any indication.

Business-to-business spending was 12% lower in May compared to last year as a result of the economic shutdown, commercial credit bureau Cortera Inc. reported, despite a 17.7% increase in retail sales from April and a 1.4% increase in industrial production.

A McKinsey survey of U.S. B2B decision-makers indicates that half think the economy will rebound in the next two-to-three months but are reducing their budgets and spending as they turn to mobile app ordering and remote selling.

The Federal Reserve has predicted the recovery will take at least two years or longer if Congress pulls back on efforts to shore up the economy.

Cortera predicts B2B spending will increase in the next two-to-three months as states lift coronavirus restrictions with retail — especially online, food and healthcare — leading the way and supply chains evolving to meet the new normal. However, the failure rate for small and medium businesses is likely to increase, which is bad news for the unemployment rate which is hovering around 14%.

With people skittish about returning to large groups, the entertainment industry is likely to offer more online experiences or cater to smaller groups, and many businesses will rethink travel, real estate and technology as remote working remains preferable.

An Alibaba.com spokesman said in an email to International Business Times that the pandemic has prompted the rapid digitization of small businesses, with Alibaba’s U.S. sales up 100% from last year and the number of U.S. buyers up 70%.

Dustin Deno, vice president for North American sales at Showpad, said it’s tough to paint the B2B sector broadly since every industry was impacted differently.

“What we're seeing is that, across the board, deals are slowing down, more decision-makers are getting involved and there's a higher level of scrutiny on purchase decisions than we've seen in a long time. Sellers have to be able to demonstrate the value of their offering and prove that it's a must-have and not a nice-to-have,” Deno said.

“The organizations that are equipping their sellers with the tools and resources to articulate that value are the ones that are recovering more quickly."

John Zupo, CEO of SABX, said the May B2B results are misleading.

“Yes, B2B sales are down, but they're not down as much as we think they are because there's plenty of pent up supply on one side and plenty of demand on the other,” he told IBT, citing anecdotes about farmers destroying excess milk and livestock and shortages of some consumer commodities. “We just can't figure out how to get stuff from A to Z.”

Zupo said current supply chain tools have been around for a half-century and are ill-equipped to deal with today’s realities.

“We think one of the fundamental broken parts is the lack of connectivity, communication and flexibility of current systems. We don't have a way to match sellers and buyers properly,” he said.

Rob McGovern, CEO of data-science company PreciseTarget, said retailers will need to rely on clearance sales to rid themselves of inventory that piled up in warehouses during the economic lockdown.

“Retailers such as Macy’s, Nordstrom, JC Penney and others did not receive any federal aid because they all have a junk bond debt rating. Not all of these retailers will shut down, and others will face an uphill battle for months and possibly years,” he said, predicting a 50% reduction in department store locations.