Dive Brief:
- Last month, smaller retailers had steady traffic but faced transaction challenges, according to research from Fiserv’s December Small Business Index, released Monday. Adjusted for inflation, small business retail during the month fell 2.2% year over year.
- Consumers prioritized essentials even in the midst of the holiday, with sales of those items up 2.8% and discretionary sales up just 0.7% compared to December 2024. Adjusted for inflation, discretionary sales dropped 1.8% year on year while essentials rose a modest 0.2%.
- Higher average tickets drove the growth, indicating that small businesses may have begun to pass tariff-induced price increases onto their customers, according to Fiserv’s analysis.
Dive Insight:
The holidays likely pushed consumers to spend more in December, and, indeed, traffic at smaller retail businesses was up more than 1% compared to 2024.
But sales growth lagged, even when it came to less discretionary items, per Fiserv’s report. Small grocery stores, for example, which account for “a significant portion of essential sales,” declined 0.3% in December despite higher footfall.
“Data from the month suggests consumers shopped actively, likely for holiday deals or last-minute gift buying, but spending stayed cautious,” Mike Spriggs, head of consumer insights at Fiserv, said by email. “Budgets tightened, and purchases skewed toward discounts, reflecting persistent economic uncertainty and inflationary pressure.”
This shows a gap between participation and profits for small retailers, and “that while shoppers are present, they’re spending more cautiously,” according to Spriggs.
“This puts small businesses in a tough spot: They’re processing more transactions without the corresponding profit lift, potentially due to rising operating expenses, persistent inflation, and tariff-related cost pressures,” Spriggs said. “The result is an environment where driving sales volume may not equate to improved profitability.”
There were signs of drooping sentiment among smaller U.S. businesses earlier in the month, according to the Q4 U.S. Chamber of Commerce Small Business Index, which hit 68.4, down from 72 in Q3.
Compared to the previous quarter, fewer reported being “very comfortable” with their cash flow, per the report. Yet more indicated that the holiday quarter this year would be more important to profits, per the survey, which was conducted by Ipsos.
Payrolls grew at smaller retail businesses toward the end of the year, according to economists at the Bank of America Institute. Profits were positive in November, but “profitability growth ... turned negative for the first time in 18 months in November, to us, likely signaling challenges in the year ahead,” per their Dec. 22 report.
Going forward, for small retailers, growth will be driven more by value and basket composition than traffic, according to Fiserv’s Spriggs.
“Success depends on driving larger per-visit spend, optimizing product mix, and refining pricing strategy,” Spriggs said. “In this environment, efficiency and agility remain critical to offset weaker foot traffic and build momentum.”
