Amina Ahmad has had trouble with wax.
Ahmad is the founder of Handmade Habitat, a small business that makes natural soy wax candles and beauty goods based out of Washington, D.C.
In recent years, Ahmad said, the price of raw materials that go into her products has dramatically jumped. When the Trump administration took office four years ago, "you could probably get a box of wax for like $52 for 50 pounds, and now it is $72," she said. "We can't up our prices to match what our margins were before. A lot of it is because we use soy wax," she explained, naming one of the products that got caught up in a tariff showdown in the past couple of years.
"Soy really caused the price to jump a lot, and then because of the pandemic it's jumped even more," Ahmad said. Materials that used to be easy to procure are now hard to obtain because of supply chain issues, and because everyone seems to be reaching for the same products. One of the basic jars she uses for her candles has been out of stock for close to three months.
The onset of COVID-19 may be seen as the moment where all of retail changed. But, focusing on problems foisted on the industry due to a health crisis isn't the entire story. The pandemic mostly sped up complex issues that were already in motion for big and small businesses alike.
As independent retailers move into the holiday season, their pain points in many ways mimic those of larger retailers. But, with thin margins, pandemic guidelines that are in flux and challenges that the larger public may not fully understand, there is a lot on the line for small businesses this year.
Solutions on a smaller scale
Independent companies are a force in the United States. There are 31.7 million small businesses, employing nearly 61 million people or over 47% of the workforce, according to the U.S. Small Business Administration Office of Advocacy's 2020 Small Business Profile. Additionally, small businesses created 1.6 million net jobs in 2019, with firms with fewer than 20 employees representing the largest gains.
All of those small businesses faced the same problems as big-box stores when COVID-19 hit the U.S. this spring. Most had to close, thus pausing operations. Larger and smaller businesses had to quickly shift to a changing retail landscape. For many small businesses, it was the first time they had to adapt operations to digital.
When Benita Smith, owner of gift boutique Adorned Abode in Tacoma, Washington, temporarily closed in March she didn't have a website. In the months since she has quickly moved to launch an e-commerce channel.
Smith also created additional services for her customers including curbside pickup and home delivery. Customers can book private shopping appointments in her store and Smith is scheduling virtual shopping where she helps customers find the perfect gift.
Smith isn't alone in this approach. According to a survey of small businesses by Bluehost, 48% of small business owners launched an online store in the last 11 months. "As more consumers are planning to shop online this year, small business owners are faced with unique challenges this holiday season," said Suhaib Zaheer, general manager and senior vice president of Bluehost in emailed comments. "Traditional advertising and foot traffic are not as effective this year compared to previous years, causing small business owners to acquire new customers and sales online."
That's a lot of operational change in less than a year, but Smith is accomplishing on a small scale what other larger retailers have also been rolling out in the past few months. In its Q3 earnings, Target reported that same-day services including Order Pick Up, Drive Up and Shipt grew 217% in the quarter. Best Buy is leveraging its brick-and-mortar stores for fulfillment of e-commerce orders and currently provides next-day delivery of online orders for more than 90% of its customers. Neiman Marcus upped its digital offerings this past summer by allowing customers to make appointments for in-store shopping or curbside pickup or work with a stylist via video.
The digital efforts are working. For Smith, adding e-commerce specifically opened up a local audience that previously did not come to the physical store. "A lot of people who are local who follow me on social media with commenting and supporting had never been to the shop," she said. "When the shop went online they put orders in for shipments and delivery. So it kind of showed me that there was a part of the population that it was not convenient for them to come out — whether or not they had to deal with parking or traffic or that sort of stuff."
The shipping conundrum
Shipping was inevitably going to be a pain point going into holiday 2020. As consumers largely stay away from in-store shopping due to a recent surge in COVID-19 cases, e-commerce has ramped up to take its place. Going into the shopping season, a Salesforce study found that 47% of consumers said they are more interested in shopping online this year than last holiday season, and eMarketer predicts that online sales will increase nearly 36% to reach more than $190 billion.
Thanksgiving weekend saw the proliferation of e-commerce sales play out while foot traffic dropped precipitously. Black Friday online sales hit $9 billion, an increase of nearly 22% from last year, while Cyber Monday claimed a record-breaking $10.8 billion, according to data from Adobe Analytics. Small businesses saw a 501% increase in online sales on that day.
All of that online shopping means a dramatic increase in packages that need to be delivered. Large retailers are already running into problems. Over the summer, major delivery companies announced peak surcharges, anticipating the upcoming holiday season. FedEx said in a July earnings call that peak surcharges are now a new normal, as the pandemic drastically moved its parcel volumes away from B2B and to more costly B2C deliveries. Around the same time, UPS also released a similar notice of increased charges for the season. To complicate shipping further, as recently as last week The Wall Street Journal reported that UPS imposed restrictions and instructed drivers not to pick up packages from retailers including Gap, Nike, L.L. Bean and Macy's.
While legacy players continue to encounter shipping headaches, the same applies to smaller retailers who find themselves also riding a wave of orders. Smith started shipping this April. "I feel like I'm spending a lot of time and energy on trying to get the shipping right," she said and she takes care to wrap up items for her clients so products look good and arrive at their destination safely. But, part of the challenge for small businesses is how to package and ship efficiently — an area where large companies struggle, too.
An additional challenge is managing shoppers' expectations for how fast items can arrive at a destination, especially in a season that is experiencing such high delivery traffic. "Shipping is not something that small business or anybody can control," Handmade Habitat's Ahmad said. "Shipping is something we don't have any power over. Once it leaves the studio, I cannot control what happens with it. Because honestly a lot of the times USPS is really overloaded this time of year."
The power of community
While all of retail is pushing hard to make the holiday successful, small businesses have something that many larger chains do not: the power of a local community.
Purchasing items via e-commerce tends to be a practical and efficient route, but the channel hasn't mastered the magic of discovery and personalized experiences. Shoppers typically have to know what they are shopping for before they hop on Amazon, for example, versus stumbling into the perfect gift.
"Many consumers are shopping local or online this year due to the pandemic, which opens a window for smaller retailers to get some of the consumer attention that was previously reserved for malls and larger shopping centers," said Natalie Kotlyar, national leader of BDO's retail and consumer products practice. "In order to have a strong holiday season, essential retailers must also focus on the holiday shopper in an attempt to convert them to future buyers of their essential products. Smaller retailers tend to offer better customer service and more unique, handmade gift-type products, so they'll have the upper hand there."
Both Smith and Ahmad have seen their own local communities rally around them this year. "Our community is ride or die," said Smith, referring to how independent retailers in her area market and support each other. "I feel like our local community, they may have different wants and needs than the online community. ... For our local community, they really want to know that it's sourced locally and that a maker has made it or a smaller business. Whereas online, people are just searching. Sometimes people aren't always that invested in where things came from."
Ahmad, too, found that even though her products are carried in more than 50 stores throughout the U.S., most of her online orders are shipped to D.C. and the surrounding states of Maryland and Virginia. When stores that carried her products closed in the spring, her customers found her online. "Feeling that community support has been really great," she said.
"For me this year it's more about community than just a crazy retail cycle, like the late stage capitalism mindset that most retailers are going to be in," Ahmad said. "It's a weird year, it's a crazy year. It's dumb to pretend like things are normal. And if there is one thing that we can do it's we can pay it forward."