With spiraling prices weighing on Main Street, more mom-and-pop businesses are making the difficult decision to pass their cost increases along to customers, even as they fret that customers will defect to big retail chains where they can find lower prices.
Sarah Piepenburg, the owner of Vinaigrette, a specialty olive oil and vinegar retailer in Minneapolis, expressed relief that her sales dropped by only 15 percent during the months of pandemic lockdowns, but she added that her expenses skyrocketed, shooting up by nearly 50 percent.
Piepenburg held off as long as she could, but she said she reluctantly plans to raise prices within the next two weeks after having experienced waves of cost hikes for glass bottles to shipping rates.
“We’re so desperate to keep our customers, because we already know we’re a premier product,” she said. “We have an extremely loyal customer base. I feel we’re lucky, but … is this price increase going to force some people to make a different decision about where they get their product, and is that price increase going to be enough to absorb some of the customers we lose?”
Piepenburg is far from alone in her struggle. The National Federation of Independent Business, a small-business trade group, found that higher costs continue to squeeze business owners has igher prices for supplies, components and transportation pile on to the sharp increases in labor costs with which many have had to contend.
The NFIB Small Business Optimism Index slumped last month, weighed down by more negative sentiments. Nine out of 10 small businesses surveyed said supply chain issues have affected them.
“They have to deal with increased input costs as far as inventory and supplies, and they’re also struggling with balancing increased compensation,” said Holly Wade, the research center’s executive director.
The number of business owners surveyed who expect better conditions over the next six months continued a downward streak — to its lowest reading since November 2012 — and 57 percent reported having raised selling prices, compared to just 6 percent who said they had lowered prices. About half said they plan to raise prices.
“One of the big stresses owners are having to deal with is balancing price increases with making sure that they continue to be competitive. It’s a delicate balancing act,” Wade said.
“They’re not seeing these issues ease any time soon,” she said. “These adjustments will continue for some time until they see those headwinds ease.”
A key metric of inflation at the wholesale level released Tuesday, the Labor Department’s October producer price index, rose by 8.6 percent from a year ago — a blistering rate of increase that matches September’s record year-over-year high. On a monthly basis, producer prices rose by 0.6 percent, a jump partly attributable to climbing gasoline prices. Still, even after volatile food and energy prices are removed, so-called core inflation jumped by 0.5 percent for the month.
“Many of the global factors that have impacted all the logistics around business are catching up with us this holiday season,” said Sarah Crozier, the communications director of the small-business advocacy group Main Street Alliance, which is pushing for lawmakers to pass the rest of President Joe Biden’s legislative agenda, which includes investments to strengthen supply chains.
Crozier said transportation and logistics issues are making it both more difficult and more expensive for businesses to get supplies and components, particularly for those in import-dependent sectors. “What is concerning, particularly for small business, is if these trends continue,” she said.
Christopher Slowinski, the founder of the New York City-based jewelry maker Christopher Designs, said, “Our industry is on a bumpy road.”
Lately, Slowinski said, he has been struggling to obtain goods like diamonds in his company’s signature style to manufacturing equipment.
Slowinski, who sells his wares to jewelry stores, said retailers are telling him that demand has remained strong — even though sticker prices have crept up by around 5 percent. “The consumer market is very strong. They’re looking to buy,” he said.
“The problem is, even if we’re looking to get tools or any supplies we need for production, it’s the same thing. What we paid six months ago, it’s more now,” he said.
And sometimes, he has found that items are unavailable at any price. When a piece of equipment broke, Slowinski tried to buy a new one, only to find that a replacement was on back order with no delivery date. “So I’m just trying to repair it myself,” he said. “It’s happening to everything you need for the business.”
Wade, of the National Federation of Independent Business, said an inability to get equipment, supplies or labor is one factor causing small businesses to lose sales. “All of these issues are limiting their capacity to meet those sales opportunities,” she said.
An inability to get equipment, supplies or labor is one factor causing small businesses to lose sales.
A community banker said he hears the worry from all sides — from business owners, from consumers and from investors worried about the impact of inflation on their nest eggs.
“The economy just wasn’t built to have these shifts in demand like we’re seeing today. There’s this tension between resilience and efficiency,” said the banker, John Cunnison, the chief investment officer at Baker Boyer Bank, based in Walla Walla, Washington. “For small businesses, they’re just having a hard time sourcing supply.”
Cunnison said small businesses in his community are struggling to procure supplies as well as labor. “A snarl in a supply chain begets another snarl,” he said. “If you can get a truck and a trucker, then you have to deal with the fuel price. It’s sort of one thing on top of another.”
As a result, he said, continually climbing costs are increasingly being borne by customers. “It varies by the business, but some proportion of that is absolutely going to be passed on,” he said.
While his Baby Boomer-age investment clients have painful memories of 1970s-style stagflation and worry that high prices are eroding the value of their portfolios, Cunnison suggested that such anxiety is misplaced.
“It does feel like there’s a little difference in this scenario with the pandemic,” he said.
“Some of this might be a pandemic effect that fades,” he added, saying the supply-demand imbalance at the heart of this inflationary run could exhaust itself before it inflicts lasting economic damage.
“With our wealth management clients … we’re taking steps to hedge against it, but there’s all sorts of reasons to believe that this is not the 1970s,” he said.