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 in 2016, “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 recent years.
“Soy 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 were hard to obtain because of supply chain issues, and because everyone seemed to be reaching for the same products. One of the basic jars she used for her candles was 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 moved into the holiday season, their pain points in many ways mimicked those of larger retailers. But, with thin margins, pandemic guidelines that were in flux, and challenges that the larger public did not fully understand, there was a lot on the line for small businesses in 2020.
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. last 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 the gift boutique Adorned Abode in Tacoma, Washington, temporarily closed in March she didn’t have a website. In the months following she quickly moved to launch an e-commerce channel.
Smith also created additional services for her customers including curbside pickup and home delivery. Customers were able to book private shopping appointments in her store and Smith scheduled virtual shopping where she helped customers find the perfect gift.
Smith wasn’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. The small businesses faced unique challenges in 2020 when consumers shifted shopping online, said Suhaib Zaheer, general manager and senior vice president of Bluehost in emailed comments. “Traditional advertising and foot traffic [were] not as effective … 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 accomplished on a small scale what other larger retailers also rolled 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 leveraged its brick-and-mortar stores for the fulfillment of e-commerce orders and was able to provide next-day delivery of online orders for more than 90% of its customers during the season. Neiman Marcus upped its digital offerings last summer by allowing customers to make appointments for in-store shopping or curbside pickup or work with a stylist via video.
The digital efforts worked. 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 stayed away from in-store shopping due to a late-year surge in COVID-19 cases, e-commerce ramped up to take its place. Going into the shopping season, a Salesforce study found that 47% of consumers said they were more interested in shopping online in 2020 than the previous holiday season, and eMarketer predicted that online sales would 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’s 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 meant a dramatic increase in packages that need to be delivered, and large retailers ran into problems early. 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, mid-season 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 experienced 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 overloaded this time of year.”
The power of community
While all of retail pushes 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 [last] 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. “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 saw their local communities rally around them in 2020. “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 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 were carried in more than 50 stores throughout the U.S., most of her online orders were 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 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.”