With closures, distancing guidelines, and lockdowns, the pandemic hit small businesses especially hard. Already operating on tight margins, many didn’t have the financial reserves to keep the doors open and pay staff. During this time, there was a huge push by the media and national and local chambers of commerce to shop local to help sustain these businesses. At the time, more than 90% of consumers said that supporting small businesses was more important than ever. (Shopping Small Benefits More Than Just Local Businesses)
As people stayed close to home, not traveling for work or pleasure, they started to ditch the malls and big-box stores for local neighborhood retailers. In 2021, nearly 75% of consumers said they planned to shop more locally over the next year (https://www.brightpearl.com/ecommerce-guides/winners-and-losers-guide-us), with 56% prioritizing local shopping. (https://www.accenture.com/us-en/insights/retail/coronavirus-consumer-habits) Technology also played a role with more consumers engaging in direct-to-consumer purchasing behavior, especially through Instagram.
But will this trend continue as more people spend time out of the house at work or travel or for entertainment? Looking at Google search trends, the interest in small businesses spiked at the outset of the pandemic and remained elevated but steadily declined to pre-pandemic levels in 2022. Early indicators were how to survive the disruption and craft business plans, suggesting more people were starting businesses while inventory management is now a breakout trend.
Small Businesses Facing Different Challenges from 2020
“Most consumers don’t necessarily know that small businesses are incurring more price increases now than they were during the peak of the pandemic,” says Kathryn Hutchison, Senior Director of Ecommerce at Threadsy, an online wholesale apparel retailer. “The headwinds and challenges that small businesses are facing are very different than those that they were experiencing at the start of the pandemic in 2020.”
A recent survey by Capital One found that 48% of small business owners are concerned about inflation, with 71% saying that it has had a negative impact on their business and 77% worried that it will having a lasting impact. (Inflation Not Dampening Small Business Confidence) Small business owners are responding by building up cash reserves, increasing prices, and purchasing more inventory. While small businesses at the outset of the pandemic struggled with in-store traffic and pivoted to digital channels and curbside pickups, the lingering supply chain problems two years into the pandemic are changing how these businesses respond.
Adapting to Changes in Prices
Consumers and small businesses have had to adapt to a wild price fluctuation over the last two years. At the outset of the pandemic, decreasing demand for products and services led to businesses reducing prices, sometimes drastically well below cost, to attract whatever remaining customers were left. (https://www.mckinsey.com/business-functions/growth-marketing-and-sales/our-insights/pricing-in-a-pandemic-navigating-the-covid-19-crisis) Of course, this depressed demand was only temporary, but it led to small businesses reducing inventories as a way to control expenses. Limited inventory in store coupled with supply chain disruptions accelerated inflation. Because small businesses usually have less cash to absorb these shocks, they’ve had to pass these costs to customers. To combat this inflation, roughly 40% of small businesses expect to raise their prices by 10% or more.
(Inflation Pushes 40% of Small Businesses to Raise Prices by 10% or More – Bloomberg)
This is a difficult position to be in for a small business that needs to pass these costs to consumers, who will see this reflected in prices more so than in larger or national retailers.
Support for Small Businesses More Critical Than Ever
The pandemic has taken its toll on business owners’ emotional and mental well-being. Almost 25% of owners say they are experiencing burnout, 60% feel run down, and 58% are worried about their finances.
(Inflation, burnout among biggest challenges small business owners face: Survey | ZDNet).
But supporting local businesses, especially after a disaster like a hurricane or a pandemic, is crucial to an economy’s health. Small businesses are an engine of growth in a community, and for every $100 spent locally, $68 is returned to the community. They even account for 65% of all new jobs over the past 17 years. (https://blog.mass.gov/blog/consumer-advice/think-local-7-reasons-why-supporting-local-business-is-good-for-your-community/)
Small businesses still struggle to find footing during and after the pandemic. However, many small businesses have pivoted during this time to adapt to new technologies, practices, and operations to stay nimble, attract customers, and manage complex supply chain issues. Consumers and communities will continue to see the benefit of supporting small businesses and the positive impact they can have for years post-COVID.
