SBAM scorecard shows mixed bag
An array of factors that are expected to continue through 2022 are causing Michigan small businesses to lag behind the national recovery, according to a new report.
The fall edition of the Michigan Entrepreneurship Score Card, published by the Small Business Association of Michigan (SBAM) in conjunction with Michigan Celebrates Small Business, showed that while Michigan’s economy has seen a “clear and consistent” improvement in 2021, this trend is not representative of the reality experienced by small businesses in the State.
This year’s 17th annual scorecard included spring and fall editions to analyze the rapidly changing economy amid the pandemic.
“The story of Michigan’s economic recovery is complicated and changing rapidly,” said SBAM Chairman Brian Calley. “While it’s great to see consistent overall economic growth, the basic stats aren’t necessarily representative of what is happening with small businesses that have experienced significant closures and lost revenue. New challenges of acute labor shortages, rising costs and supply chain disruptions are hampering the recovery. “
The fall scorecard identified the factors that helped and the factors that hindered Michigan’s economic rehabilitation, in addition to the state’s outlook for a full and robust recovery.
Signs of positive improvement include:
- Eight months of improvement in gross domestic product in a row on the Comerica economic activity index
- Michigan economy is improving at an average pace relative to most states in 2021, Reserve Bank of Philadelphia State Coincidence Index shows
The scorecard showed that during Michigan’s recovery, many industries dominated by small businesses are still struggling. The report showed:
- Changing consumption habits have pushed customers to large online retailers, and long-term closures and restrictions have decimated small stores, restaurants and event venues.
- A significant ongoing shift to remote working has left many downtown business districts lagging behind in their recovery.
- Personal consumption spending on goods has fully rebounded, but personal spending on services remains below pre-pandemic levels. The service sector is dominated by small businesses.
- Employers have reported significant difficulties in staffing their businesses to grow or even stay fully open, as the pandemic appears to have exacerbated a long-term decline in labor market participation rates.
- Michigan’s recovery is below the national average in the number of small businesses opened and the loss of income for small businesses compared to the year before the pandemic.
- Rising costs are squeezing small business margins, and supply chain disruptions present challenges for economic recovery.
Calley said the main concern he heard from small businesses was staff shortages, which is worrying because the labor force participation rate is not declining as quickly as other economic indicators after a slow-down.
“The decline we are feeling today has lasted for 20 years,” he said. “Before the 2001 recession, labor force participation was more like 67 percent and above. It fell to an extraordinarily low level last year (just over 60%) and then climbed back up, but instead of climbing back up to 64% or 65%, as it was before the pandemic recession, it only climbed back to around 61.7. %. … History tells us that a growing economy does not solve the labor force participation problem we face today.
He said this reality is forcing small businesses, especially in the service sector, to make tough choices, such as limiting hours and days of operation while having to pay fixed costs for real estate and equipment. ; train workers to new levels of productivity; adding automatic checkouts in grocery stores and iPad ordering systems in restaurants (or eliminating table service and switching to bar or counter service), all so the business can operate on less workers.
Changing consumer behavior regarding the shift to online shopping means that small businesses that may not have previously done online sales need to enter the realm of e-commerce – a very noisy and overwhelming place – to compete.
“Even though most retail businesses have and have had an online order fulfillment and procurement system, online presence is what makes it impossible for some small businesses to compete without using someone’s platform. another one, ”Calley said. “There are certain stores that cater to the traffic of office workers, and that’s their market and their exposure, it’s the fact that they’re physically located in a place that is literally in plain sight or in plain sight. reach of thousands of office workers. Overnight, the habits of office workers, in terms of where and how they work, change and markets literally move from city centers to suburban areas.
He said it was not easy for them to recover sales from this lost demographic, as being found online requires a new set of skills and a new level of resources.
“Someone can’t just set up a website and ask anyone online to find it. When you research things, most of the big, dominant and giant online retailers create and buy a presence that literally isn’t possible for most small businesses to replicate or compete with, ”he said. “Either they have to sell through someone else’s network and give them a track, or there are brands that are just strong brands with a loyal following, and people are looking for them.”
Calley said some types of retail businesses are more affected by this change in consumer behavior than others, but there will always be a segment of the consumer population that prefers to touch, smell and experience items before buying them. .
“This market, I think it will always be served, but it is difficult for me to imagine that the proportion of online shopping will decrease at any time for the foreseeable future,” he said.
Calley noted that some large retailers like Meijer provide a place for local small businesses to sell their products, which helps provide more sales channels.
“I think the market will find its way to a new equilibrium. Some spending habits won’t change back, and it doesn’t have to be, but there will certainly be winners and losers in the mix where things work out, ”he said.
“One thing I know about entrepreneurs is that as long as they know the rules of the game, they innovate and find their new place in it. Where I get my confidence from is that while some industries are going to be irreparably damaged by the permanent changes of the pandemic, many entrepreneurs will also take advantage of the situation to build a better mousetrap. “
The full scorecard report is available for download at sbam.org/scorecard.