Black Friday will certainly look different this year. Shoppers won’t be camping outside of stores in the early dawn or stampeding to chase flat screen TVs. Instead, many deals are extending for the whole month of November, and most are moving online. But beyond an extended Black Friday, there’s also another, more meaningful, trend that may also affect sales: choosing to shop at Black-owned businesses.
Black business owners have been twice as likely to close up shop during the coronavirus pandemic than other small businesses, an August study from the Federal Reserve Bank of New York finds. Meanwhile, of course, there have been continued protests over police shootings of Black men and women and the failures of the justice system. In this extremity, many have taken action with their wallets, and some Black-owned businesses have seen increased sales.
Some large companies have also created programs to support Black-owned businesses. Facebook released a #BuyBlack Friday Gift Guide, and this week TikTok launched a hub for Black entrepreneurs that includes special partnerships and initiatives available on its app.
A new report from management consulting firm McKinsey & Co., though, notes that more than one-off decisions, actions and donations are needed to transform the economic landscape in which Black-owned businesses strive to survive. In other words, our attempts to transform the economy must transcend moments of protest and celebration. These efforts for equity would pay off. In a landscape where Black-owned businesses earn the same amount of revenue as their white counterparts, the United States would gain $190 billion in GDP, the study estimates.
McKinsey’s report also details the challenges Black-owned businesses are facing, especially during the pandemic, and the type of coordinated action required to achieve revenue parity and community prosperity.
Some of the barriers Black entrepreneurs face in earning revenue and scaling include being disproportionately located in economically disadvantaged states and neighborhoods, disconnection from mentorship opportunities and, most importantly, intentional exclusion by financial institutions from potential capital, the report details. Black-owned businesses start with an average of $35,000 at their outset, while white-owned counterparts begin with $107,000, a 2016 study from the Stanford Institute for Economic Policy Research found.
Even before March, 58 percent of Black-owned businesses were at risk of financial distress, compared with 27 percent of white-owned businesses, the Federal Reserve Bank of New York claims. Pandemic-related distress has only heightened the risks of closure — one to remember this Black Friday as weather across the U.S. gets far colder, adding to the risks people face in contracting COVID-19.
“The aggregate barriers to starting and sustaining a Black-owned business translate structural bias into less access to capital, lower revenue, and dimmer prospects for business growth,” the McKinsey report states. “The mainstream financial system’s role in those barriers has helped to maintain Black Americans’ distrust of the financial sector as well as fear of debt.”
Recommended solutions in a pandemic response that resolves persistent issues include building what McKinsey calls “supportive ecosystems” for Black-owned businesses. These community-focused, cross-sector ecosystems would counteract structural barriers based on racism and exclusion using interventions such as enforcing anti-discrimination laws, increasing available capital contributions and developing more diverse management teams in the private sector.
McKinsey lists five interventions as remedies to the barriers that Black entrepreneurs face:
First, build relationships between anchor institutions in the community and Black-owned businesses with a mix of advisory and advocacy roles.
Next, public, private and social sectors should work together to ensure that anti-discrimination laws and policies are updated and enforced.
Most importantly, financial institutions could provide greater opportunities for start-up and expansion capital with fewer strings attached, as well as offering guidance on finding and securing funding.
Anchor institutions in the private and social sectors can also offer resources to re-skill and up-skill workers to help reinforce business capabilities and build systems of knowledge-sharing, with a special focus on digitizing management and workflows.
Finally, the private sector can consciously form mentorship and sponsorship networks for Black workers and leaders within companies, and — on a larger scale — cities and regions developing partnerships between startups and similar established businesses.
Some cities had already been striving to strengthen their Black-owned businesses before small business distress, new cases of police brutality and resulting protests hit the news this year. In Memphis, The 800 Initiative aims to help Black-owned firms in the city increase their revenue by $50 million within five years. Inspired by Memphis, fellow Tennessee city Knoxville created its own 100Knoxville plan with a mission to increase the revenue of Black-owned firms with paid employees by $10 million by 2025. Part of Knoxville’s strategy is improving access to social, political and financial capital — methods that directly align with McKinsey’s recommendations.
Brandon Bruce, lead partner in the 100Knoxville initiative, notes that achieving marked progress in breaking down stubborn barriers requires tireless efforts. He writes, “When it comes to supporting Black-owned businesses in Knoxville, it’s about sustained commitment to growth in order to create jobs and wealth in our community for generations to come.”
This type of commitment can certainly begin on Black Friday, but it must last for many Fridays to come if communities are to see results.
Image credit: Paul Sableman/Flickr
Roya is a writer and graphic designer based in Philadelphia, PA. She loves being involved in her community, helping to foster a healthy and happy environment. She is excited to write about innovations and ideas in corporate responsibility for TriplePundit. You can find her on LinkedIn.