Main Street Merchants Cling to Price Increases Amid Recession Fears
Although inflation has eased from summertime highs, new research shows small merchants still very worried. According to a new PYMNTS study, “Main Street Health Survey Q4 2022: SMBs Brace For A Recession,” two-thirds of so-called Main Street small and medium-sized business (SMB) owners anticipate a recession, with roughly 40% of firms citing inflation as their biggest challenge.
This, ahead of Tuesday’s (Dec. 13) latest reading on CPI for the month of November, which is pegged to show headline inflation slipped to 7.3% last month from the prior 7.7% level in October.
While down from a peak of 9.1% in June, the impact of record high prices has put retailers — especially smaller ones — in a particularly tough position, as they are being squeezed by reduced consumer spending and increased promotional activity while also being hit with higher input and supply costs but lack the size and clout to demand a better deal.
Price Hikes SMBs’ Only Recourse
As a result, the study found, most SMBs responded to 40-year-high inflation the only way they could and raised prices.
“Marking up prices has been the primary strategy to fend off inflation’s effects, with 31% of firms saying this was the most important action, up from 29% in July,” PYMNTS’ Main Street Health Survey Q4 2022 noted.
In addition, the study found that only 11% of firms reported reducing business costs in October, down from 16% in July, the level of business that mentioned they were working on improving productivity stood steady at just 13%.
As PYMNTS reported on Friday (Dec. 9), “Consumer perception of severe price increases across key products offers a sobering look at the present consumption climate, with Americans reporting that they believe the cost of many consumer staples has increased by 25% or more. All-important gasoline is perceived by Americans to have risen by a staggering 42.9%.”
That’s a confidence killer for SMBs that have been battling nonstop sales at blowout prices from Amazon to Walmart for most of the year, a fight that SMBs don’t have the scale to win.
Consumers Say Inflation Twice as Bad as Government Reports
Even as data and trends improve, retail customers are often slow to believe and respond to such report. Last week, for example, the University of Michigan said on Friday (Dec. 9) that its latest consumer confidence index rose to 59.1, coming in higher than expected, and had recovered most of its recent losses, sentiment remains well below its historical norms.
At the same, and in a similar vein, the Michigan report also noted that while year-ahead inflation expectations had improved considerably, they too remained relatively high at 4.6%.
“Gains in the sentiment index were seen across multiple demographic groups, with particularly large increases for higher-income families and those with larger stock holdings, supported by recent rises in financial markets,” University of Michigan Director of the Surveys of Consumers Joanne Hsu said.
“Throughout the survey, concerns over high prices — which remain high relative to just before this current inflationary episode — have eased modestly,” she added.
Even so, the U.S. Census Bureau’s Business Trends and Outlook Survey (BTOS) released Thursday (Dec. 8) showed that small businesses are finding it increasingly difficult to forecast more than a year out — a sign of the uncertainty faced by SMBs as 2023 closes in.