Main Street Retailers Rethink Their Inflation-Fighting Strategies

Change is hard, especially when it comes to making money. However, the main method small- to medium-sized businesses (SMBs) have so far been using to fight off inflation, increased prices, may not be viable for much longer, if it currently is at all.

Consumers’ budgets may simply not have much space to pay higher prices than can be found at a larger competitor or foot the cost of formerly free features like shipping. This is especially true in the ultra-competitive eCommerce space, where deals rule supreme and consumers prioritize essentials above all else. Some sectors, such as car sales, retail and service-based spending are all in a slump as consumers “freak out” over the persistently high cost of living.

Despite these indicators, SMBs’ continued use of raising prices to fight inflation is reflected in proprietary data prepared for PYMNTS’ collaboration with Enigma, “Main Street Health Q1 2023.”

From July 2022 to January 2023, SMBs raised their prices more than any other way to combat inflation. Although it may be tempting to continue with this strategy, consumers have been warning for months that SMBs may feel the pinch first as inflation for essentials lingers.

As a result, SMBs may consider implementing other cost-cutting strategies to offset expenses rather than risk running afoul of “shopper price rebellion.” So far, decreasing business costs has been an unattractive option for many SMBs, and it is being used as a main action to combat inflation four percentage points less in January than last July. Previous PYMNTS research found more than one in 10 SMBs do not plan to invest in digital upgrades to improve margins.

Some smaller merchants have already turned to other options to combat inflation by incrementally automating select systems. This may include modernizing supply chain processes, as 52% of the retail sector overall has opted to focus on or use decreasing shipping costs to offset business expenses.

Although raising prices may work a while longer, consumers can’t (or won’t) patronize merchants repeatedly when there may be better deals for the same goods. Savvy SMBs will likely want to seek ways to combat inflation besides raising prices — or be prepared to risk their wrath.