Small business gets creative and personal to combat rising inflation

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The latest Main Street quarterly report from the Canadian Federation of Independent Business, covering the first quarter of 2023, indicates price increases have slowed and employment numbers have gradually improved over the past year.AFP/Getty Images

A bookstore was a retirement plan for Cole Davidson and his partner Stephen. Then, during the pandemic, they saw a lot of similar dreams get put on hold.

“We decided that if it’s something we wanted to do,” Mr. Davidson says, “we shouldn’t put it off and we should just go for it.”

They planned for 18 months before opening The Spaniel’s Tale in Ottawa’s Hintonburg neighborhood last September. As regulations relaxed, they soon felt the economic aftershocks of the pandemic, experiencing rent hikes and higher shipping costs, while aiming to maintain a living wage for their employees.

“For us, we started out with these inflationary pressures, so we don’t know what it’s like to not have this level of inflation.”

Small businesses – new and established – can relate to the struggle.

The latest Main Street quarterly report from the Canadian Federation of Independent Business, covering the first quarter of 2023, indicates price increases have slowed and employment numbers have gradually improved over the past year. But Simon Gaudreault, the CFIB’s chief economist and head of research, says Canada’s small businesses are still challenged by pandemic-related debts and interruptions.

“Once they were through with the lockdowns, businesses had to face a cascade of spillover effects from the pandemic: the supply chain challenges, cost pressures, and the labor market pressures,” Mr. Gaudreault says.

A September 2022 CFIB report found businesses had an average pandemic-related debt of around $144,000, and 40 per cent of these businesses had yet to make any payments. The CFIB’s latest business barometer report indicates small-business concerns with input costs have eased since the height of the pandemic, but remains far above pre-pandemic levels.

“It’s normalizing to a great extent,” says Mr. Gaudreault, but “one of the things that we’re hearing commonly through our regular surveys and meetings with entrepreneurs is that the price of certain inputs has doubled, tripled.”

A major price increase for even a single good or service “will have an impact at the end of the month on your prices or your bottom line,” he adds.

The Spaniel’s Tale has seen its operating costs increase after less than a year in business. “Our rent did go up. Things like garbage pickup and insurance and building maintenance, all of [those costs] have gone up quite recently.”

Their commitment to providing a living wage for their employees means labor costs have risen with the rate of inflation. They haven’t had to look at the cuts just yet, “but certainly it’s something that we’ve had to think about as we watch the numbers, as we watch the markets and watch our bottom line,” Mr. Davidson says.

Even in the face of rising costs, “raising our prices is not an option,” he says. “We’re already asking our customers to pay full cover prices for books when we know they could go on Amazon and get it for 20 or 30 per cent less.” Their larger competitors, like Chapters and Indigo, are “buying at volumes that we couldn’t even dream of,” he adds. “They’re also selling so much more than we are, and so they’re able to offer discounts.”

Kostya Polyakov, partner and Canadian national industry leader for consumer retail at consultancy KPMG, says “there’s no way of getting around that – a larger multinational will be able to probably buy at a better price than a small regional retailer just due to volume.”

Mr. Polyakov says the advantages of big businesses go further. “If you’re a larger organization and you see price hikes coming up, you can overbuy [stock] and spread it throughout the world. If you have the working capital, if you have the credit capacity, a larger company can pre-order enough to cover maybe six months of its demand, rather than one or two months, and they can hold onto it.”

A larger company can then absorb the inventory costs, where a smaller company might struggle.

Mr. Polyakov highlights two key advantages for small businesses. The first is having the flexibility to create a better customer experience. “Customers have clearly shown that they do want to go back to the stores, they are going back to the stores for that touch, feel, try-on experience.”

The American Booksellers’ Association, for example, in May reported a 580-per-cent increase in sales for independent bookstores since 2020.

The second factor “is to be absolutely on point in terms of data and analytics on your customers and your products,” Mr. Polyakov says. As convenient as online shopping can be, going to the store to get a product is faster – if it’s in stock. “The business needs to understand its customers and understand what it is that they expect you to have on the shelf.”

The Spaniel’s Tale has managed to do both. Mr. Davidson says they’ve leaned into being a ‘third space’ in the community – “a space that’s not home, and it’s not work, but it’s still a place where you can spend time,” he explains. They’ve also expanded into hosting book launches – something that wasn’t possible when they opened – and have been opening stands at pop-up markets around the neighborhood, meeting new customers in the process.

With regards to Mr. Polyakov’s second bit of advice, The Spaniel’s Tale prides itself on knowing its customers. “We’ve got customers who can call us and we recognize their voice on the phone,” Mr. Davidson says. “We know the types of books they read, we’re able to make personal recommendations based on what they like.

“That’s the kind of thing that people like about small local independent businesses. You’re never going to get that at an Indigo or at a Walmart or Amazon.”

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