Workforce shortages, inflation and shifting consumer preferences are some of the major headwinds facing small- to midsize retailers and brands this coming holiday shopping season. But despite the challenges, researchers from Verizon Business found business owners to be somewhat optimistic.
In this special small- to medium-size businesses report, WWD shares the key findings of Verizon Business’ State of Small Business Survey as well as insights from two separate reports that shed light on the consumer mindset heading into the all-important fourth quarter.
A Brighter Future?
In the Verizon survey of 600 SMBs, respondents cited the state of the economy and issues such as inflation and labor shortages as top concerns. But, remarkably, 56 percent of those polled said they believe they will be better off a year from now than they are now.
“While 68 percent of small- and midsize business decision-makers expected their business to be doing better in 2022 versus 2021, only 46 percent say that business has improved,” the authors of the report said.
Aparna Khurjekar, chief revenue officer of business markets and SaaS at Verizon Business, said while there has been a tightening of the belt by businesses of all sizes, “they have also seen the benefit of continued innovation and technology investment to drive sales, employee engagement and improved customer experience.”
Some of the key findings of the report include that 44 percent of SMB respondents said they
are “concerned about supply chain issues affecting holiday season sales,” while 35 percent said they are worried about economic hardships and inflation impacting sales. Workforce and macro-economic woes are also top-of-mind with 82 percent of those polled citing inflation as a top concern. And despite that concern, 80 percent of respondents said they have not laid off any employees as a result while 87 percent said they haven’t reduced their employees’ wages either.
Where SMBs Cut Back
Verizon Business, which offers a range of technology solutions for SMBs, said in the report that respondents are less likely to cut spending on tech as compared to other costs. “Compared to cutting spending on operational investments (39 percent) and employee events (59 percent), only 29 percent have already cut or plan to cut technology investments in the next six months,” the authors of the report said.
The researchers also noted that 48 percent of those polled said they “began offering new products and services to adapt to changing consumer needs in the past year.” Specifically, Verizon Business said the poll found that 48 percent of technology additions made by SMBs “initially were to drive customer acquisition and 53 percent of businesses who have added to their tech stack invested to better connect with existing customers.”
Other concerns of SMBs include cybersecurity. “Consistent with 2021, a majority of small- and midsize business decision makers consider the following a risk to their business this year: viruses (55 percent), malware and ransomware (54 percent), sensitive data vulnerabilities (51 percent), password theft (51 percent) and spam and phishing (50 percent),” the authors of the report noted.
How Consumers Are Feeling
In its most recent consumer research, Escalent said shoppers are less confident that their 2022 holiday plans “will come to fruition compared to a year ago.” The company said only 42 percent of consumers polled said they feel “confident they’ll achieve their holiday shopping and travel plans (down 24 percentage points from 2021).” The survey also found that 49 percent of consumers said they “are uncertain if their plans will be achieved (up 23 percentage points from 2021).”
What’s top-of-mind? Inflation and the economy. Escalent found that 32 percent of respondents expect to dole out less money this holiday season, while just 16 percent expect to spend more. Meanwhile, 31 percent of consumers “will be looking for different types of gifts compared to what they normally buy,” the authors of the report said.
Regarding travel, 44 percent of consumers expect to travel by car this holiday season with 47 percent noting that they are “concerned about gas prices and expect it to impact travel plans.”
It’s important to note that consumer sentiment survey results can vary depending on the mood of respondents. For example, shoppers can be cranky and pessimistic one day because they spent $125 to fill their gas tank. And another day they could be optimistic after getting a raise at work. So, in a separate survey by Coveo, which was done in partnership with Arlington Research and involved 4,000 U.S. and U.K. consumers, researchers from the firm found that 80 percent of respondents “said that they plan to shop the same or more during the upcoming holiday season compared with past years.”
“Interestingly, nearly one in two shoppers (45 percent) said they will start their shopping earlier than usual to find deals and discounts given the rising cost and availability of goods,” the authors of the report also noted.
“Despite the rising cost of living, we continue to see strong interest in shopping for the upcoming holidays, though brands should note the anticipated behavioral changes related to shopping time frames, generational mindsets and expectations for intertwined online-offline customer experiences,” said Brian McGlynn, general manager of commerce at Coveo. “As economic conditions continue to fluctuate, we believe retailers must keep up with shopper behavior trends and test assumptions to keep the customer experiences relevant at all times and the focus on profitability and performance will be even more necessitated.”
Some of the trends revealed in the survey include the importance of physical stores and how it drives online sales. “While 54 percent of consumers said they are likely to look at a product online and buy it in-store, an almost identical number (53 percent) reported being likely to look at a product in-store and buy it online.”
The survey also found that 42 percent of shoppers “explicitly said they will leave a site if shipping options are limited, or they don’t have a buy online, pick up in store option. Also noteworthy is that 35 percent of respondents said they are turned off by restrictive returns policies.”
Regarding purchasing decisions, the survey found that 67 percent of respondents said they are interested “in product recommendations, tailored offers, discounts and promotions.”
“This, combined with the likelihood of spreading out purchases to take advantage of deals, means retailers should note that although many consumers are shopping more online, it may be more challenging to translate the interest into a higher Average Order Value (AOV),” the authors of the report noted.
So, what do these trends mean for SMBs? Well, if you’re a small- to medium-sized retailer or brand, you could review the Verizon Business data and see if any of the findings resonate with you and then use the insights to inform your business decisions. For example, if supply chain or fulfillment issues are of concern, what can you do to mitigate them? Does it make sense to stock up earlier on top sellers ahead of holiday? Or is it better to keep inventory lean and steer shoppers to the items you have in stock? And with inflation, is it feasible to pass along higher costs to the consumer?
With the consumer behavior trends, the data points can help shape your holiday selling and marketing strategy. For example, the point from Escalent about 31 percent of respondents saying they will be looking for different types of gifts compared to what they normally buy is an opportunity for retailers and brands to tout products that can be clearly differentiated from competitors.
And with the Coveo consumer sentiment, it might make sense to sharpen your promotional campaigns and make it more personal and targeted.