Inflation, the general increase in prices over time, has become a pressing concern for small businesses. As the economy grapples with the aftermath of COVID-19, rising inflation rates are creating a host of challenges for entrepreneurs and small business owners alike.
Across industries, small businesses are fighting the repercussions of rising prices. The cost of materials, energy and labor has surged, placing immense strain on the profitability of small businesses.
One of the primary areas affected by inflation is shipping costs. Chris Smith, co-owner of Let it Grow, a plant store in Hutchinson, indicated that shipping expenses constitute a significant portion of the business’s overall expenses.
“Shipping is ridiculous,” Smith said. “If we order $6,000 worth of plants, shipping is around $2,500. That’s a huge piece of our overall costs.”
Smith purchases plants from California and Florida, and rising shipping costs have taken a toll on his budget. With a surge in fuel prices and the trucker shortage compounding the issue, inflation has had a profound impact on shipping expenses.
“Everything is a little bit more expensive,” Smith said. “There’s really a ceiling on how much people are going to pay, and what I am afraid of is that we will reach that ceiling. When you start adding in the extra costs, it’s like the perfect storm for somebody like us.”
Data from U.S. Department of Labor indicate the annual inflation rate for the U.S. was 4% in May, which is down from 6.5% in 2022, but up from 2020’s 1.4%. Faced with this reality, small business owners are forced to reassess their business strategies and explore new avenues for survival and growth.
DeAnn Rothstein, owner of DeAnn’s Country Village Shoppe in Litchfield, changed her business buying structure by placing smaller orders but more frequently. Additionally, she’s had to discontinue her loyalty punch card program temporarily to help control costs. Rothstein also takes advantage of freight caps offered by suppliers, ensuring shipping costs don’t exceed a certain percentage of the business’s order value.
“If it’s a company that will give you a freight cap, you’re definitely going to want to take advantage of that,” Rothstien said. “You kind of have to play all the cards, not just the hand you’re dealt.”
Rothstein also noted that during the pandemic delays in international shipping were a concern, with additional costs such as ocean surcharges adding to her expenses. However, this has improved over the last few months.
Emily Reck, owner of By Mae in Hutchinson, one of the only plus size boutiques in Minnesota, understands the rising cost of living is taking a toll on families budgets.
“Inflation doesn’t affect just one certain group,” Reck said. “It affects every household. People have to decide whether to buy groceries or get a new top. Household budgets are getting stretched to their limits.”
Small businesses often face tough decisions about whether to absorb increased costs, pass them on to customers or close up shop. This is something Jill Hass knows well. The owner of the gift store Olita in Hutchinson, Hass has had to make tough decisions. Recently she closed her store in St. Peter to cut overhead.
“I’m not carrying my handbags right now,” Hass said. “Shipping from Italy has skyrocketed, to the point where I would have to put my handbags to a price point that I’m not comfortable selling them at. I’m not paying myself, which is tough. But that’s the first cut. I work as much as possible. I’ve changed my hours.”
Rhonda Zwack, co-owner of Ramsey Printing and Design in Litchfield, also feels the pressure of adding additional fees.
“That’s the hardest part, passing along shipping,” Zwack said. “You hand someone a bill for their merchandise then you hit them with $200 in shipping costs, we don’t make any money on that, but we have to pass it (shipping) along.”
To counter the impact of inflation, many businesses have made a strategic shift toward supporting local producers. Instead of relying on expensive imported goods many local businesses have started sourcing products from local artisans.
“The costs are getting so expensive, we’ve transitioned to buying local,” Let it Grow’s Smith said. “We have a woodworker that makes a lot of our plant stands. A local gal, Janessa, makes all of our earrings. The macramé plant hangers are from someone that works down at the hair place. We just figured, because of inflation, shipping and costs of goods, we’d rather pay that extra cost to local people.”
This pivot not only helps businesses avoid high shipping costs but also contributes to the uniqueness of their products and helps supports the community.
Co-organizers of Greener Pastures, a natural food co-op in Hutchinson, Alycia Gruenhagen, Karl Homberg and Ruby Pollman noted that even though their prices are higher than the box stores, customers know what a value they bring to the community.
“The customers coming in seems consistent,” Gruenhagen said. “Maybe they’re struggling a little bit more with what and how to buy. They’re just more selective about what they purchase.”
Pollmann added, “We appreciate our community support to keep going.”
As inflation continues to make its presence felt, small businesses find themselves in a race against time. Adaptability, resilience, and innovative thinking are key to surviving these uncertain times. While the challenges are significant, small businesses that proactively embrace change and implement effective strategies have a fighting chance of weathering the storm of inflation and emerging stronger on the other side.
“We wouldn’t be here without supporters from the community,” Reck said. “It takes a village to run a small business but when the village stops, the small businesses die.”
