COVID-19 Widens Racial Wealth Gap, Hitting Black Businesses Especially Hard

Roslyn Karamoko in an orange dress standing in a boutique filled with clothing
Roslyn Karamoko, a majority owner of Detroit is the New Black

Amina Daniels has just that kind of get-to-it, high-energy personality you’d expect from the owner of a contemporary fitness studio on Agnes Street in Detroit’s rapidly revitalizing West Village.

She’s heard the word no; she just keeps moving anyway toward her goals.

She looked at 91 potential locations where one landlord after another dismissed her idea for creating an inclusive space offering a socially interactive fitness program in an urban community.

Daniels kept moving forward until she found a good spot to rent in 2016. She opened Live Cycle Delight — which includes TRX or total resistance exercise, yoga and hot yoga, Pilates, Barre classes and indoor cycling — on March 31, 2017.

“I’m prepared for work,” says Daniels, 35, as she talks about reopening the studio after Michigan’s lengthy shutdown to stem the spread of COVID-19 and, more recently, after what she calls the racial uprising that has swept metro Detroit and much of the country.

“Our last class was Monday, March 16,” Daniels said.

For the past 13 weeks, Live Cycle Delight has offered virtual classes and more recently some small classes outdoors, including outdoor cycling rides. Giving a rough estimate, she says the business has lost about $75,000 in sales in the past quarter. Only about 10% of her clients have participated in classes during the pandemic.

“Landlords are still expecting their rent, even though we were closed,” Daniels said.

Early numbers show signs of economic trouble

For Black-owned businesses, the hurdles are even higher as the economy reopens, especially given the racial wealth gap, the higher unemployment rate during the crisis among African Americans and the lack of access that many minority businesses have to traditional loans, even including the new Payment Protection Program.

Already some small businesses lost the battle. About 3.3 million small businesses shut their doors, or 22%, from February until April, according to a report by the Stanford Institute for Economic Policy Research.

Many will attempt to come back, but we won’t know for months how many will survive, according to researchers.

African American businesses were hit especially hard with 41% shutting down. Latinx businesses followed with 32% closed and Asian businesses fell by 26%.

Female-owned businesses also were disproportionately hit at 25%. Such findings of early-stage losses to small businesses may lead to even greater economic inequality.

“It is clear that this recession and its immediate aftermath will widen the Black-white wealth gap,” said Christian Weller, professor of public policy at the University of Massachusetts Boston.

Weller, whose research has focused on wealth inequality, predicts that Black people are more likely to face longer financial setbacks in the coronavirus crisis than white people, much like what happened after the Great Recession, which ran from December 2007 through June 2009.

Black families tend to be harder hit by the virus, triggering both short-term and long-term health care costs. And many African American families have fewer financial resources to weather the public health crisis and the economic storm.

Social distancing restrictions have hit people of color, particularly women, hard, as many work in retailing and other service industries that will likely face obstacles ahead as the economy tries to remain open while fighting the ongoing health threat of COVID-19.

“Black women often work in restaurants, hotels and direct care work — nursing homes, assisted living and home care,” Weller said.

“Many of these jobs have gone away. And, if they have not gone away, workers are in the unenviable position that they have to choose between their health (and that of their families) and their ability to pay their bills.”

Daniels, who did qualify for a Payment Protection Program loan and other grants, fully expects to remain in business, help Live Cycle Delight keep growing and work through the long list of challenges ahead.

“We’re really ready to get open whenever we can do it the right way,” she said.

Daniels is frank about how business, no doubt, will change even once Michigan Gov. Gretchen Whitmer gives a green light to reopening exercise facilities. Maybe, Daniels hopes, her studio and others may be allowed to reopen in late June or early July.

Even then, she will be operating in a post-COVID world of restricted class sizes to allow for social distancing, as well as other added safety measures and costs to stem the spread of the disease.

The Black Lives Matter movement brings a new business dynamic, as well.

“I’m a Black-owned business,” Daniels said, “and a customer could feel like they don’t want to have to deal with it or it makes them confront their privilege or I might have been too vocal about my experience.”

“There are a lot of people who don’t agree with the Black Lives Movement,” she said. “There are a lot of people who don’t agree with defunding the police.”

She knows the risk of being politically outspoken but she says it’s her duty to help educate people about why it’s essential to be an ”anti-racist” in the wake of George Floyd’s death in police custody in Minneapolis.

“I’m Black so this is the life for a lot of people who are Black,” Daniels said.

She has not joined in this summer’s protests because of concerns about being arrested, and a need to keep running her business.

She has been vocal on social media platforms and has made donations to the Detroit Justice Center, Black Lives Matter and other groups.

About 70% of the studio’s customers are white. A client recently told her that they were enlightened about the extent of police brutality after seeing videos in the last few years that captured the use of excess force in the deaths of Black men.

“If you don’t experience racism,” Daniels said, “you don’t know.”

Pain of pandemic still not fully felt

The pandemic, the protests, and the recession will challenge everyone’s financial health. While short-term fixes — such as stimulus money, temporary debt relief for mortgages and other loans, and an emergency $600 extra a week in jobless benefits — will help cover some job losses and pandemic-related shortfalls, experts say the long-standing, systemic wealth disparities put Black people at greater risk during a recession.

“I don’t think the true pain of this has been discovered yet,” said Dedrick Asante-Muhammad, who serves as chief of race, wealth and community for the National Community Reinvestment Coalition in Washington, D.C.

The federal supplemental unemployment benefits of $600, which expire at the end of July unless they are extended, can cover some of the gaps. But should those payments end, he said, people in service industries, who once often had to work two jobs to make ends meet, could still be vulnerable.

“More likely than not, you were using that extra job not just for extra cash but to pay regular bills,” Asante-Muhammad said.

“Even as people start going back to work, are people going to be making the same salaries as they were before?”

He fears that people of color will have a far more difficult time recovering from the 2020 recession, given the depth of the racial wealth divide.

“I do think that COVID highlighted racial inequality,” Asante-Muhammad said.

Lisa Cook, professor of economics and international relations at Michigan State University, said much of family wealth for African Americans and Hispanics was wiped out during the Great Recession when many people lost jobs, homes and money. Predatory lending practices targeted Black and Hispanic families, contributing to foreclosures.

Now, she said the threat is that many Black households don’t have enough savings or wealth to weather the fast-moving COVID-19 storm.

“This is what we call in economics a sudden stop, there was no time to prepare,” she said.

Those who have limited savings likely tapped into an emergency fund to cover extra grocery costs as people were encouraged to stay safe and stay home as much as possible.

“Everything that we’ve seen laid bare by the pandemic has had a long history, whether it’s health inequality, wealth inequality, income inequality, policing inequality,” Cook said.

“It’s very difficult to save in these low-wage jobs,” she said.

“We’ve already seen that Black entrepreneurs have had a harder time getting PPP funds than their white counterparts,” Cook said.

In addition, Cook said, the video showing Floyd’s death has triggered a great deal more stress for the Black community, leading to what she believes will be a need for greater support of mental health services in communities.

“People are being retraumatized and they’re saying to themselves: ‘That can be me,’ ” she said.

Staggering racial wealth disparities

The safety nets just aren’t as strong because of a long history of racism and inequality, experts say.

The median wealth for white families, for example, was nearly 10 times greater than for Black families based on the last available data.

White families had a median wealth of $171,000 in 2016, compared with $17,600 for Black families and $20,700 for Hispanic families, according to a 2017 study by the Federal Reserve based on Survey of Consumer Finances data.

According to the data from the Census’ Household Pulse Survey, 55.7% of Black respondents in the fourth week of May said that they had experienced an income loss in the past seven days. That compares with 43.1% of whites, Weller said.

Moreover, 25.3% of Black households didn’t pay their mortgage or deferred it, compared with 8.6% of whites.

Recalibrating plans is a new economic reality

Roslyn Karamoko, 35, finds it tough to put an estimate on just how big of a financial hit her business has taken since her store on Woodward Avenue closed on March 16 because of the governor’s stay home order.

Detroit is the New Black had yet to reopen by June 12, even though some other clothing retailers in metro Detroit could begin under the order to see customers without an appointment a week earlier.

Downtown offices in Detroit aren’t running at full capacity. What had been an exciting summer concert schedule at Comerica Park, including Billy Joel, has been delayed until next year. The Detroit Tigers aren’t playing baseball yet this summer.

The foot traffic on Woodward Avenue just isn’t there yet.

The plan is to open Detroit is the New Black by the end of June or maybe the first week of July.

Detroit is the New Black is as much about artistic expression, as it is about fashion. The downtown space offers room for events such as art exhibits, trunk shows and poetry slams. All events that must adjust to the new COVID-19 reality.

“Financially, it’s hard to put a number to it,” said Karamoko, who is a majority owner in the store.

“But I would say well over $100,000 was lost in missed sales from the store being closed.”

“It was already a challenging business for sure,” she said, noting that traffic on Woodward wasn’t always where it necessarily needed to be and she was aiming to do something unusual and build a cultural community, too. Already there wasn’t a lot of cushion to carry her through.

Karamoko, who is originally from Seattle, moved to Detroit in 2012 and launched her business in 2014. She opened her first brick-and-mortar operation in the N’Namdi Center for Contemporary Art in Midtown in 2015, and then opened her first store on Woodward Avenue in 2016.

She said the pandemic has given her time to review how best to handle the space on Woodward, as well as to hold discussions on right-sizing operations with her landlord Bedrock.

“It has given us a time to recalibrate.”

Karamoko has benefited from enhanced jobless benefits that now cover the self-employed as part of the coronavirus relief effort and she is working with other programs. She didn’t apply for PPP money but she did apply for an emergency disaster loan, was told she was eligible but has yet to see any money.

Bedrock, Detroit’s largest commercial real estate company, has been working with her to provide temporary rent relief.

Karamoko is looking forward to announcing a new collaborative partnership that can help her continue her community-driven, cultural mission for Detroit is the New Black.

“We’re not strictly retail,” Karamoko said. “It serves the city. It serves the narrative of the city.”

She’s confident that some new relationships and programs will enable the business to keep going, even though she knows times ahead will likely be difficult.

“When you have such a short runway and this type of thing happens, it’s do or die for the business,” Karamoko said.

(Article written by Susan Tompor)