Despite facing high inflation and interest rates, Americans are spending more. In December 2023, U.S. consumers spent $19 trillion, marking a 6.0% increase from the previous year and a 29.0% rise from February 2020.
The main reason people are spending more is because of the convenience offered by technology. Digital currencies and easy payment systems are a big part of this. According to a McKinsey survey, 73.0% of consumers purchased goods through a website, a 27.0% increase from 2019. At the same time, 53.0% of Americans prefer a digital wallet (i.e., Apple Pay, Google Wallet, Venmo, PayPal, etc.) over a traditional one. When linked to these digital wallets, credit cards make spending even more convenient. As a result, transaction amounts have risen by 9.4%, and purchases up by 10.7%. This embrace of technology has sped up the movement of money and increased how often people buy things.
The increase in consumer spending is also driven by the popularity of “buy now, pay later” services, which encourage shoppers to buy more goods on credit and make purchases without immediate payment. Services like Klarna, Affirm, and PayPal have recently become more popular, allowing consumers to spread the cost of expensive items over several payments. During the last holiday season, shoppers spent $16.6 billion through the “buy now pay later” apps, marking a 14.0% increase from the year prior, according to Adobe Analytics.
The rise of e-commerce giants like Amazon and Alibaba has revolutionized the industry, offering competitive prices, fast and reliable shipping, and a user-friendly shopping experience. They’ve also pioneered subscription services and personalized recommendations, further enhancing customer convenience. As a result, in 2023, twenty major retailers closed 2,847 locations throughout the U.S.
However, while major retailers are feeling the pressure, small businesses have been on the increase. According to the SBA, as of 2023, there were a reported 33,185,550 small businesses in the U.S. While hundreds of thousands of small businesses start and fail annually, they have maintained a net increase over the past few years. And statistics show:
- Over the past three decades, small businesses operating in America have doubled.
- Small businesses generate 44% of the U.S. economic activity (GDP).
- Small businesses are responsible for two of every three jobs (12.9 million new net jobs in 25 years).
- 65.5% of small businesses are profitable.
- 7.9% of small businesses make over $1 million per year.
- 80% of small businesses feel optimistic about the future (71% expect revenue to increase).
Even though those numbers look great for small businesses’ future, E-commerce continues to innovate, with faster delivery options, personalized recommendations, and the integration of artificial intelligence, which will pose even more competitive challenges.
Small businesses’ future success lies in adapting to change and creating a seamless blend of online and offline experiences. Brick-and-mortar stores will likely evolve to become more experiential, offering services and experiences that can’t be replicated online.
A concept gaining traction is “phygital retail,“ where online and offline experiences merge. To entice customers, stores are offering in-store pickup for online purchases, digital kiosks, click-and-collect options, and enhanced in-store experiences such as augmented and virtual reality.
Even though Amazon and Wayfair dominate the online retail market, they are also partnering with businesses to help sell their products. Businesses that partner with Amazon can also access the advanced Amazon seller tools that allow for a seamless transition from traditional retail to eCommerce.
According to one study, most small business owners (86.3%) pay themselves less than six figures. Non-employer small businesses, so those who operate them on their own make modest revenue. A report showed that the average non-employer had receipts of less than $47,000. Another study found that 45% of these non-employers had revenues of less than $25,000 a year.
The lack of cash flow is the most significant contributor to small business failure.
At Business Finance Corporation, we help small businesses with cash flow issues by converting accounts receivable into ready cash. Call 702-947-3800 to speak to a representative, or go to https://bfc.vegas/ to see how we can increase your cash flow.
Your Partner in Success,
David Cabral