Independents Battle Internet Competition and Rising Costs – In Many Industries

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Internet competition, unfair supplier terms, high health care costs, and growing marketing expenses were the top challenges for independent businesses in 2014, according to a new survey released this month.

Results were based on completed questionnaires from 3,057 independent businesses from a number of industries including bicycle retailers, as well as those specializing in toys, books, running, inns, flowers, records, and miscellaneous others. “Independent businesses” are loosely defined as companies that are locally owned and operated.

About half of the respondents were retailers. The rest were a mix of service providers, manufacturers, farmers, banks, restaurants, and wholesalers. The 8th annual survey included 2,954 businesses in the United States, and 103 in Canada, employing a total of 39,682 people. The survey was conducted by the Institute for Local Self Reliance and Advocates for Independent Business, a group partially supported by the National Bicycle Dealers Association.

Revenue – Sales were pretty good in 2014 for most of the businesses, with average revenue growth of 8.1% being reported. As a group, retailer growth was a little less robust at 5.1%. Bike shops helped drag the average down though, with sales growth of just 0.9% for the year.

The Internet challenge – Competition from large Internet companies was rated as the biggest challenge facing independent retailers, with 71% ranking Internet competition as a very or extremely significant challenge. Among bike dealers, an emphatic 97% agreed.

Pricing and Terms – Another issue was supplier pricing and terms that favor big competitors “to use their market power to pressure suppliers.” 63% said regulators should more vigorously enforce antitrust laws against large and dominant companies.

Insurance and Rent – High costs for health insurance were cited by many as a problem, as well as growing expenses for effective marketing. Bike dealers added two other challenges to the mix: high occupancy cost relative to sales, and competition from large brick-and-mortar stores.

Holiday Sales – Independent retailers reported a 4.8% increase in holiday sales, beating the 1% overall retail sales growth number for the U.S. in December reported by the U.S. Department of Commerce. Bike dealers didn’t enjoy the holidays as much, reporting a holiday sales decline of 1.2%.

Local First – While most respondents don’t have Local First campaigns in their areas, where they did their sales grew by 9.3%. In cities with Local First campaigns, nearly 70% said it had a noticeable positive impact on their businesses. 64% said public awareness of the benefits of supporting locally owned businesses increased in 2014, with one saying, “Buy local to me is a growing trend and it works.” And another: “There is a new appreciation of authentic and small scale.”

Small Business Saturday – An American Express promotion, Small Business Saturday was a one day promotion in November to promote independents. 51% of retailers reported it had a moderate or significant positive impact on their businesses. It didn’t help bike dealers much though, with 95% saying it had no impact, and 5% saying they didn’t know about it or weren’t sure.

Internet sales tax – Nearly three-quarters of the respondents said unfair sales tax policies allowing some online companies to avoid collecting tax were negatively impacting them. 79% of bike dealers agreed, and 93% said they would support state legislation to require large out-of-state retailers to collect sales tax on purchases made by state residents.

Access to Credit – A sizable number of independent businesses reported trouble obtaining financing to fund business expansion. About 30% of those applying for a bank loan in the last two years were turned down. Difficulty in obtaining credit was worse for people of color (44%), women (35%) and immigrants (40%), as well as very small businesses (52%) and new start-ups (42%).

Advocacy – 51% of businesses actively engage with the government on public policy issues that affect locally-owned businesses. Bike shops were more engaged than the average, with 76% either frequently or occasionally being involved with advocacy. More bike paths!

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