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Small businesses eat the cost of inflation: 'Keep the customer happy or you lose the customer'

Margot Roosevelt, Samantha Masunaga, Los Angeles Times on

Published in Business News

For Vivian Bowers, owner of a South Los Angeles dry cleaner, inflation hit home when her wholesale cost for hangers soared by 48% in six months.

Tom Bock, who runs an electric bike dealership in Huntington Beach, California, has had to pay his workers 25% more, on top of a boost in commissions.

Hagop Berberian, owner of an auto repair shop in Inglewood, California, is afraid to fully pass on the escalating cost of tires, motor oil and Freon. “Either you keep the customer happy or you lose the customer,” he said.

Skyrocketing inflation is slamming many of California’s 1.6 million small businesses, which employ more than half the state’s workforce. Supply chain snafus make it harder and costlier to restock inventory. Workers are seeking higher pay amid a labor shortage. And small firms are less able to navigate the challenges than larger competitors.

In October, the 6.2% rise in U.S. consumer prices was the biggest year-over-year jump in 31 years. Torrid surges in the cost of housing, gasoline, cars and food continue to capture headlines. For many small stores selling goods from furniture to footwear, and for providers of services from haircuts to home care, it is a nerve-racking time: Do they charge more and risk losing clients?

“Larger firms can absorb higher costs for supplies,” said Holly Wade, research director of the National Federation of Independent Business, an advocacy group with more than 300,000 members. “And when it comes to supply chain disruptions, they’re at the top of the pecking order as far as deliveries, given their volume of purchases. For small firms, it’s a different ballgame.”

 

Across the economy, consumers who stopped traveling, dining out, getting their hair cut and going to movies during the COVID-19 pandemic amassed trillions of dollars in savings collectively. Rising vaccination rates enable shoppers to feel safer. And with returning jobs, more people are spending freely despite rising inflation. Retail sales jumped 1.7% in October, more than double September’s growth rate and the fastest pace since March.

Californians are doing better than most. In the second quarter, the Golden State experienced the nation’s fastest rise in personal income since the pandemic after South Dakota, according to a Pew Charitable Trust analysis. Boosted by government assistance, returning jobs and higher wages, it grew by 5.9%, adjusted for inflation.

But many small businesses are not feeling the love.

And their profits are at risk, said University of California, Santa Cruz economist Robert Fairlie. “When the cost to make a carne asada burrito goes up, some of that is passed on to the customer. And some of it is just eaten by the business owner.” Beef prices are up 20% in a year.

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