Title: Small Business Owners Face Challenges Amid Inflation and Changing Consumer Behavior
Small business owners, like Kevin Meehan of Kali restaurant in Los Angeles, have been navigating unprecedented economic conditions for over eight years. However, the holiday season of late 2022 brought unexpected challenges, followed by a peculiar January with declining alcohol sales due to the growing “Dry January” trend. Meehan shared that making payroll and paying bills from December was an uphill performance, stating, “That’s a lot of big checks we had to write.”
Despite optimistic signs in the economy, such as cooling inflation and a robust GDP reading, small businesses seem to be struggling. According to the National Federation of Independent Business’s January survey, business owners cited inflation and labor shortages as ongoing challenges. Furthermore, some have added a weakening consumer as a new concern.
Meehan’s Michelin-starred establishment, which attracts loyal clientele, hasn’t been enough to secure a permanent future. “You’d think that being an eight-year-old business with such great clientele, we’d be a shoo-in for having a permanent residence,” Meehan said. “But that’s not the case at all.” He continued to express concerns over rising labor and food costs, which have yet to be fully adjusted.
National data has indicated a potential pullback in consumer spending. US retail sales dropped 0.8% in January, falling below economists’ expectations of a 0.1% decline. Senior Economist Charles Dougherty from Wells Fargo noted, “It does seem as though businesses are having a more challenging time passing down higher costs to the consumer. Small businesses make up the vast majority of business establishments in the United States economy, so they are at the forefront of what’s happening in terms of economic activity.”
Small businesses account for nearly half of US economic activity and have long been part of the American Dream. Sarah Cash started The 12th House, a Grand Rapids gift shop selling locally handmade goods in 2021, as a tribute to their late father who was a metalsmith and jewelry maker. Cash shared that they invested every Dollar earned back into the business in the initial years, but sales took a downturn over the last eight to nine months. “People have stopped spending money on non-essential items, and gift shops aren’t really necessary,” Cash explained. “I’ve noticed people are spending less per transaction compared to when I first opened.”
Inflation peaked at 9.1% in June 2022, but it has been gradually declining, with a 3.1% increase in January – closer to the Federal Reserve’s 2% inflation target. Cash shared that she’s still facing challenges despite easing inflation, stating, “If this fundraiser doesn’t go well, then I probably will not be in business come May.”
Small businesses may experience a delay in feeling the effects of easing inflation. However, once stable prices are experienced for a more extended period, Dougherty believes their sentiment may improve. A recent survey of American Express small business customers revealed that half of the 557 US small businesses planned to grow or expand their businesses in the upcoming year. Meehan remains optimistic, despite a slow January, sharing that Valentine’s Day week was successful and he will continue to invest all profits back into the business. “I don’t have a choice but to be optimistic,” Meehan said. “I just need to fight harder.”
