Small businesses raise prices and put off some customers – News
Kim Shanahan, who runs online store Gifts Fullfield, stacks Get Well Soon boxes at her store Thursday, Sept. 8, 2022 in Berlin, Md. It is a development project for another company to create jobs in its company. (AP Photo/Todd Dudek)
By MAE Anderson
AP Business Writer
Inflation in New York isn’t just costing small businesses money. It is also expensive for their customers.
At the Bushwick Grind Cafe in Brooklyn, New York, Kime Williams-Davis raised prices and switched to a variety of products to meet rising costs for milk, coffee, paper and plastic products, as well as to shortages of items such as groceries. Paper cups and plastic lids. It hasn’t experienced anything like it since it opened in 2015.
Williams-Davis said it lost about half of its regular customers. Some have traded and are buying $1 coffee at McDonald’s or the bodega across the street instead of paying the $3 price.
“If (customers) can get it for a dollar because the difference isn’t significant, they’re missing out.”
A customer who’s been coming for years stopped by to tell Williams-Davis he bought himself a coffee maker.
“He said I’m going to start making coffee at home, I need a budget so I won’t be there every day,” she said. “I feel like I was part of a farewell campaign.”
Inflation is rising at nearly the fastest rate in 40 years, driven by strong consumer spending and higher costs for food, rent, medical care and other necessities.
On Tuesday, the government will announce that price increases slowed in August compared to a year ago, largely due to the continued decline in gasoline prices. The prices of other items, especially food, can rise quickly. Overall, economists expect consumer prices rose 8.1% in August, from a year earlier, from 8.5% in July, according to data provider FactSet.
For most of the pandemic, small business customers largely tolerated price hikes and continued to spend. But now owners say they see some pushback.
According to the Goldman Sachs 10,000 Small Business Voices survey of more than 1,500 small businesses, 97% of small business owners say inflationary pressures are the same or worse than three months ago. Sixty-five percent raised prices to offset rising costs. And 38% said they saw a drop in customer demand due to price increases.
Nicole Misskelly, who runs PMR, an auto and diesel repair shop in Marion, Ill., says she’s seen customers put off repairs that aren’t as urgent as scheduled maintenance or buying new tires.
At the start of the year, Miskelly’s labor costs rose 12% and the cost of towing cars to the store increased due to rising gas prices. Parts are also expensive. Last year an air conditioner processor cost him $200, but this year he can find no less than $400. He therefore had to increase his average price of repairs by 30 to 40%.
His customers noticed.
“Usually I can joke about how different things are now and most people agree with me,” he said. “Of course I deal with pushback,” including being yelled at or cursed at by a customer is a rare occurrence.
“A lot of my older clients, who have limited incomes like Social Security, say they have to cut back,” he said. “They say, ‘I know I need those tires, but I have to do a few extra rounds (from Social Security) to save money. “”
He says he is a bit worried but hopes people can cope with inflation.
“Right now it’s kind of sad because the cost has gone up beyond what I can bear. Over time, I expect people’s budgets to improve and their incomes change to reflect the economy.”
The decline is more pronounced among consumers with lower discretionary income. Walmart says its lower-income customers spend more on food and less on other items. Small business owners see a lot of the same things.
Kim Shanahan runs the online store Gifts Filled in Berlin, Maryland, which sells gift baskets and care packages and employs people with disabilities.
“Last year was tough, to say the least,” he said. “All prices have gone up in all areas.” Cardboard foods, containers and baskets have become more expensive.
He implemented a 5% raise to cover some costs. After raising the price of her most popular gift basket, the “One Tough Cookie,” from $27.50 to $28.95, sales plummeted, she said.
Cheaper baskets, like those with gifts and candies that sell for $25 or less, are the hardest hit, with unit sales down nearly 50% in 2022 from a year ago. “The whole market is gone for us,” he said.
“We don’t want to put articles in our main category,” Shanahan said. “What we’re seeing is people buying maybe a $50 gift that goes down to $35. And all the lower tier don’t even buy, they don’t have discretionary funds.
Schuyler Northstrom of Uintah Mattress, a mattress maker in Salt Lake City, Utah, said it has raised prices 15% since 2020. A mattress that sold for $289 wholesale now costs $330.
This increase does not fully cover the higher costs of Uinta. Raw materials such as springs and foams increased by 40%. But Northstrom fears that the price hike will push its customers away.
“Retail refusal is pretty strong there,” he said. Its business partners include John Paras Mattress Stores and 2 Brothers Mattress, both located in Utah. “Sometimes we get squeezed out by some of the big guys with low-priced products because of their volume.”
To adapt, Northstrom is redesigning the mattress to cut costs and make less profit, which isn’t sustainable in the long term, he said. It focuses more on the high end, with mattresses priced as high as $1,200, which hasn’t hurt nearly as much.
“We feel it, we’re not a necessity buy, people buy food and gas,” he said.
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