The 2022 SMB Revolution
The past two years have seen a monumental shift in how businesses function, especially small to midsized businesses (SMBs). At the onslaught of the pandemic, many SMBs struggled to stay afloat. However, the quick adoption of digital e-commerce platforms enabled many to achieve agility and resilience amid challenging times. Today, SMBs are poised for growth and will continue to find ways to go head-to-head with giant corporations for loyal customers.
While specifications of what classifies a small business can vary from place to place, industry to industry, etc., metrics including number of locations, sales volume, number of transactions, and average transaction size help differentiate them from larger organizations. Upon evaluating businesses that meet these qualifications, several key SMB trends emerge for 2022 and beyond:
SMB Creation Will Continue to Outperform That of Large Businesses
In many markets worldwide, counterintuitively, a vast number of small businesses opened in 2020 compared to 2019. U.S. Census data from 2020 demonstrates entrepreneurs applied for 4.3 million new Employer Identification Numbers in 2020, a 24 percent growth since 2019. Roughly 32 percent more SMB retailers were launched in 2020 in 19 key markets compared to 2019, nearly eight times the entry rate of large firms, which grew 4 percent during the same period.
In 2021, 93 percent of consumers said supporting small businesses was a priority more than ever before. As consumer loyalty shifts towards smaller, local companies and away from larger corporations, the door will remain open for entrepreneurs across the board to find success.
Small Retailers With Digital Presences Will Continue to Flourish
Digital as a location was a clear winner for SMBs that could successfully make the shift. In July 2020, the number of existing businesses that made the shift online for the first time tripled compared to the typical pre-pandemic level, reflecting increased demand by SMBs for an online sales channel. Ninety-five percent of SMBs moved a portion of their operations online last year, and 71 percent of growing SMBs say they survived the pandemic through digitization. The emergence of SMBs globally will parallel the rise of SMBs strengthening their omnichannel customer experience.
Consumer spending at small retailers was up 4.5 percent through August 2021 compared to the same period in 2020, with e-commerce up over 30 percent. Consumers today expect convenient, seamless and intuitive shopping experiences. Businesses will need to remain keenly aware of consumers’ purchasing habits to stay abreast of trends and how they can insert themselves to meet customers’ evolving needs.
Business’ Locations Will Continue to Be a Critical Factor in Retail Success
A business' physical location was significant amid COVID. With many office workers and tourists staying home, businesses in central business districts — the commercial and business center of a city — suffered. At the same time, those in residential areas saw sales grow.
In April 2020, SMBs in New York City's business districts were roughly one-third of 2019 levels. While spending at small businesses in New York City business districts saw improvements post-lockdowns, sales were still down (73 percent of 2019) vs. levels in August 2021. Comparatively, SMBs in the outer city-neighborhoods saw 85 percent of 2019 levels in April 2020 and saw promising growth (124 percent of 2019 levels) in August 2021.
Businesses around the world have experienced tremendous hardships over the past two years. However, in the shadow of that adversity, many proved how these challenges bred innovation crucial for SMBs to meet evolving needs and new market opportunities. Furthermore, with the ebbs and flows of today’s daily life — new COVID variants, vaccination acceptance rates, and infection rates continuing to fluctuate — SMBs are ripe for evolution and constantly finding new ways to adapt to the new dynamic reality.
Scott Weller is senior vice president, product strategy at SessionM, a Mastercard company.
Related story: The Impact of COVID on the SMB Market: A Deep Dive