As one of the most important players in the local and small business economy, we’re always eager to see data that comes out of Mastercard. The financial services giant released a report earlier this week showing a sense of optimism among global small businesses. The study, Recovery Insights: Small Business Reset considers the situation of local SMBs in 19 markets around the world.
The data indicate that SMB sales rose 4.5% through August 2021 as compared to the same time in 2020, at the height of the pandemic. Moreover, eCommerce sales are up 31.4% during the same period. This is not unexpected and consistent with much of the data Localogy collects in its MCM tracking study.
Here are some key findings from the Mastercard research.
Closures: Globally, small businesses that closed early in the pandemic were about three times as likely as larger businesses to remain closed long term
One-third of small businesses that closed in April 2020 remained closed after six months. And about one-fifth were still closed after 12 months. Locally, the situation varied. In the U.S., roughly one in four small retailers remained closed after 6 months, vs. roughly one in 12 large retailers. This isn’t surprising since small retailers are less likely to have the cash balances necessary to weather a prolonged decline in sales.
Location: Spending at SMB retailers in central business districts is down 33% vs. 2019, while sales within more residential neighborhoods grew 8%
As tourists and workers stay closer to home, small businesses in commercial districts are seeing sales suffer. Based on current WFH trends in some of the largest markets — e.g. San Francisco — we don’t see SMBs in the central business districts coming back anytime soon. Just take a walk through San Francisco’s CBD and you’ll see the devastation wrought on local businesses that once served the thousands of daily workers who would flow in and out of the city.
E-Commerce: Following shutdowns, the number of businesses going online each month tripled from pre-pandemic levels, peaking in July 2020
This reflects increased demand for an online sales channel, as well as the slight lag after lockdowns began to bring it into reality. The shift to digital has persisted at an elevated level globally since. Lots of data out there confirms this. And we expect merchants — local and global — to now compete on the basis of their eCommerce customer experience.
Entrepreneurship: One-third more small retailers launched in 2020 than in 2019, nearly 8x the number of larger firms created
This trend of considerable new SMB formation in 2020 is reflected around the world: U.K. (+101%), U.S. (+86%), Australia (+73%), Germany (+62%), Brazil (+35%) and South Africa (+13%). This bodes well for company’s that focus on helping SMBs deliver compelling solutions for their customers. These are pretty large numbers, but we expect to see some considerable shrinkage. Many of the individuals who started businesses during the pandemic probably lack the skills and resources needed to really grow a business.
Sectors – Restaurants & Lodging: Small lodging businesses outperformed large by a wide margin during the summers of 2020 and 2021
Where people are traveling, the trend to stay local has benefited small lodging companies (and hurt big cities’ big hotels). Restaurants were a different story, with SMB eateries underperforming large ones globally by roughly 17 percentage points in 2021 YTD. Small local establishments in the food and lodging sector seemed to have gotten a considerable boost as the “buy local” sentiment rose during the pandemic. How much of that sentiment remains post-pandemic is TBD.
Bricklin Dwyer, Mastercard chief economist and head of the Mastercard Economics Institute, had this to say about the report’s findings.
“Supporting neighborhood businesses has been a rallying point throughout the pandemic. However, the challenges faced have been very real. This is due to their dependency on local markets, local supply chains, and tighter cash flows. But, we see brighter opportunities ahead. The shift to digital opened the door to the pandemic’s silver lining: a resurgence of entrepreneurship and innovation.”
Time will tell as to how many of these trends hold up post-pandemic. But we see considerable optimism coming out of this data. and other data we see about the local and small business markets here in the U.S. and globally.