Smaller retailers are reaping benefits from higher gas prices and the tentative nature of the tepid economic recovery in the U.S.
According to a new monthly survey introduced today by MasterCard Advisors and Wells Fargo, spending at smaller stores increased 8 percent in June, versus overall U.S. retail growth of 6.9 percent, the ninth consecutive month that they’ve exceeded general retail results and, by extension, those of larger stores. Although “small” is defined as having less than $35 million in annual sales and fewer than 200 employees, most in this category have sales of under $10 million, according to Michael McNamara, global solutions leader for MasterCard SpendingPulse.
The 8 percent figure excludes automotive sales. With the further exclusion of gas, the increase for small stores descends to 7.8 percent, a figure that drops to 7.5 percent with the further removal of food service.
“We generally saw conditions that favored large businesses until last October,” McNamara told WWD. “Going back to 2003, larger stores had generally outperformed their smaller competitors, but that wasn’t the case during the recession, when smaller stores were down, although not as much as the overall retail market, and it’s not the case now. Larger stores did rebound more robustly following the recession.”
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One theory for the recent trend, he explained, is that smaller stores tend to be clustered in cities and towns, rather than in malls, and their proximity to residential areas makes them more attractive to consumers as gasoline prices rise. “There’s been some price relief recently, down to about $3.40 a gallon nationally, but we’re still seeing year-over-year declines in the amount of gas being pumped, and gas would probably have to get to about $3.25 before you’d see changes in driving,” McNamara noted. “Last week, there was 5.5 percent less gas pumped than in the comparable 2011 week, even with prices down a bit. Years ago, a swing of 2 percent was considered a lot.”
Even with their relative strength, small retailers have struggled along with their larger counterparts. Compared with results from May, smaller stores’ sales were down 1.9 percent, their first month-on-month decline since a 12.2 percent dip in January.
The best year-on-year comparisons for smaller retailers during their recent streak came in February, when their sales were up 10.3 percent, and last November, when they rose 10.5 percent.
Analyzing the numbers by category without regard to store size, McNamara said that jewelry has been difficult, with sales contracting, while increases in men’s and women’s apparel have decelerated. “Women’s has been a bit more consistent,” he said. “For the last five months, increases have ranged from 3.5 to 4.5 percent, but men’s has been more volatile. Sales were up 5.7 percent in June — a good Father’s Day — but up 2.2 percent in May and 1.8 percent in April.”
“With the essential role or small businesses in our nation’s economic recovery, there’s a great need for more insight into small business retail sales,” said Marc Bernstein, head of small business at Wells Fargo, noting that small retailers account for more than $100 billion a month in retail transactions, even excluding automotive sales.
MasterCard’s data includes all cash, credit and check transactions. Wells Fargo, purported to be the largest lender to small business in the U.S., is providing insights into the financing and lending activities of smaller enterprises for the new SpendingPulse for Small Business report.