The Sad Plight of Small Businesses

As you can see, while the largest 25 retailers (including the likes of Amazon, Sears, Best Buy and Walmart) grew their sales by 11%, the remaining retailers saw their sales drop by 7%. That’s not say that each of the retailers outside of the top 25 saw their sales decline but, taken as a group, it’s clear that many smaller retailers struggled this past year. In these economically difficult times, I suspect that many smaller retailers are simply not able to compete with the aggressive promotions and price discounting being implemented by their larger brethren. There’s an old marketing axiom which says that companies who are able to continue to invest in marketing during recessionary times actually emerge from the recession in a stronger competitive condition. That certainly seems to hold true today for the larger online retailers.

The sad plight of smaller businesses is revealed in stark reality in a report from the National Federation of Small Businesses. In December 2009, they conducted a survey of their members in which they explored sales and profit trends and expected hiring plans. Here are some of the key results. They are very disturbing.

• When asked if their sales had increased or decreased during the Oct – Dec period compared to the prior three months, a net 25% of small businesses said sales had declined. I think this is a staggering finding when one considers that this means that many small businesses are saying that their sales in the peak holiday shopping period were actually lower than in the prior three months.
  • Widespread price cutting contributed to the reports of lower nominal sales
  • Lack of sales was the single most important problem faced by small businesses, being cited by 35% of respondents
• When asked if their profits had increased or decreased during the Oct – Dec period compared to the prior three months, a net 43% of small businesses said that their profits had declined. Again, very disturbing results.
  • Only 12% of owners reported higher earnings in most recent three months
  • 54% reported lower earnings with 65% citing weaker sales as the cause
  • Low sales volume was the number one reason cited for lack of earnings by 35% of respondents
• Historically, small businesses have been the source of new job creation in the U.S., accounting for two thirds of all new jobs created. But today, the “job generating machine” remains in reverse. Jobs are being lost and new hiring is very weak.
  • When asked if they were planning to create new jobs, a seasonally adjusted net 2% of owners reported they didn’t plan to create new jobs over the next three months. Nonetheless, this is an improvement of one percentage point over the November number.
  • However, while the trend for increased employment is going in the right direction, there is no indication that job growth from small businesses will not be strong enough to dramatically reduce the unemployment rate. This is a particularly thorny issue because without this engine running at full throttle we will really struggle getting the unemployment level back down to reasonable levels.

So, what’s a small retailer to do in this ultra-competitive environment? Well, staying close to one’s customers is probably more important than ever. I think that using social networking to build communities of customers and then reaching out to them with relevant and frequent communications holds a lot of promise, especially for smaller retailers. They should be able to execute better than their larger competitors. For one thing, they don’t have to deal with the internal organizational bureaucracy and delays that can hinder many larger companies when deciding how CRM / social networking programs should be executed. And, the use of social networking offers significant opportunities to reduce marketing costs, which will help smaller retailers overcome the challenge of their larger competitors’ greater financial resources.