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Walmart and Target will be making money this Christmas. Small businesses may not be so lucky

By on November 27, 2021 0

But this year’s Small Business Saturday promotion is unlikely to change the fortunes of independent stores in America, which have radically diverged from their biggest rivals.

Small retailers have been squeezed out throughout the pandemic and are at a significant disadvantage in the face of the current supply chain crisis, rising inflation and a shortage of workers, sales analysts told the retail and supply chain experts.
First, as the Covid-19 spread last year, many small stores did not meet the criteria for “essential” businesses and had to close. Their biggest competitors such as Walmart (WMT), Target (TGT), Costco (COST), Home deposit (HD) and others were able to remain open.

With the closure of small retailers and the halt in travel and leisure spending, these large chains flourished as Americans stocked up on groceries, housewares, office supplies and furniture during home stay warrants.

Meanwhile, the pandemic has caused about 200,000 more small businesses to shut down in the first year of the pandemic than in a typical year, the Federal Reserve valued.

As independent stores began reopening in the second half of 2020 and early 2021, they encountered a new set of challenges: manufacturing stoppages and material shortages that made it more difficult to obtain products and keeping them in stock, higher shipping and transport costs. that difficulties in hiring and retaining workers.

All retailers have faced these issues this year. But the challenges have hit independent stores harder, experts say. Mom-and-pop owners are usually lower on the priority list for manufacturers and shipping companies when shortages or delays arise.

The Home Depot, for example, said last week that some suppliers with limited supplies told the chain they were prioritizing business over others: “’We can’t serve the industry, we prefer so focus on the best partner, ”the suppliers said, Home Depot COO Edward Decker recalled on a call with analysts last week.

Small stores also generally lack the financial flexibility to handle higher costs and keep prices low for customers, unlike larger competitors who can use their size and extensive resources to absorb cost increases.

“Large retailers should be better able to handle supply chain issues and have better inventory than small retailers without muscle,” said Michael Baker, retail analyst at DA Davidson, in a note to customers last week.

The gap between large and small retailers

Sales are expected to explode this holiday, but smaller stores may miss out as shoppers head to cheaper chains with more products on their shelves.

Retail sales in November and December will increase between 8.5% and 10.5% this year from the 2020 holiday season, to a record $ 859 billion, predicts the National Retail Federation, a retail group of industry.

Large chain inventories soared ahead of the holidays thanks in part to tactics far too expensive for most store owners – chartering ships and air freighting product to the United States from overseas, for example. Large retailers have also relied on their extensive supplier networks to alleviate raw material shortages and plant closures. Small stores usually only have a handful of vendors, so if something goes wrong with one of them, they’re stranded.

Target is “well positioned” on major holiday products such as toys and gifts, retail giant’s chief operating officer John Mulligan said on an earnings call last week. This will help Target “continue to gain market share over the holiday season”.

Retail giants are going out of their way during this holiday season to stock merchandise, keep prices low for customers, and run stores and warehouses. But independent stores are struggling to keep up.

According to a recent survey by the National Federation of Independent Businesses, a lobby group for small businesses, 39% of small business owners said in October that supply chain disruptions have had a significant impact on their business. Another 29% reported moderate impact. Only 10% reported no impact from supply chain disruptions.

“Small business owners are trying to take advantage of current economic growth, but remain pessimistic about business conditions for the near future,” NFIB Chief Economist Bill Dunkelberg said in a statement.

The shortage of workers for unfilled jobs and inventory shortages are among the main challenges for small businesses, he said, and “will continue to be a problem during the holiday season.”

All of this means that by the end of the holidays, it’s likely that the gap between America’s biggest and smallest stores would have widened further.

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