By

N. David Milder

Introduction

In several of my recent articles I have noted, with frank surprise and delight, that small retailers in the small and medium-sized downtowns I have visited appeared to be doing relatively well. Their numbers also seemed to have rebounded, though to a degree that I could not determine. Given that my field visits could not cover a representative sample of small retailers, in this article I will look at data gathered in the 2007 and 2012 Economic Censuses that bookended the Great Recession. These data do not have sampling problems, though the veracity of the information provided by the businesses is an ever present and unmeasured issue. That said, they still are the best data we have.

I analyzed these data to try to answer two basic questions about small retailers:

1. Are their numbers rebounding numerically after the Great Recession?
2. Are their sales revenues (receipts to the Census Bureau) rebounding after the Great Recession?

Some Important Basic Facts

According to the SBA and other Federal agencies, enterprises with less than 20 employees (<20) are considered to be Very Small. Those with fewer than 500 employees are designated as small! I would guess that in most small and medium sized downtowns and Main Street districts, a retailer with 19 employees would be considered relatively large. Almost all of their independent retailers probably fail in the <20 category. I doubt that any would have an independent retailer with about 500 employees Fortunately, the Census Bureau does provide data for smaller employment size categories as can be seen in the table below.

The vast majority of America’s retail enterprises are small, no matter how you define small. In 2012:

• 91% had fewer than 20 employees
• 80% had under 10 employees
• 60% had fewer than 5 employees.

Though very large in number, the small retailers, as a group, capture a relatively small share of the nation’s retail sales. In 2012, for example:

• The 91% of all retail firms with less than 20 employees captured just 15.5% of all retail sales
• The 60% of all retail firms with less than 5 employees captured just 5.4% of all retail sales.

Are the Small Retailers Increasing or Declining in Number?

The answer to this question is an important indicator of the current strength and vitality of these retailers.

The Great Recession in 2008-2009 had a huge negative impact on our nation’s retailers, forcing many of them out of business. As can be seen in the above table, between 2007 and 2012 there was a net -9% decline in the number of all retail enterprises, large and small. With the natural churn of openings and closings, many more retail closures probably occurred as a result of the recession.

The small retailers were reduced in number, too, but proportionately not as much as those in the larger retail enterprise employment categories. Nationally, the number of those with less than 20 employees dropped by -8% between 2007 and 2012; the number of those with 0 to 9 employees (the very, very small retailers?) dropped by -7%, the lowest of any enterprise employment category I analyzed. However, the sampling of state level data presented in the table suggests significant variation at that geographic level. For example, among those enterprises with 0-9 employees there was a national -7% decrease in the number of retail firms, but among the nine states listed, the decrease ranged from -3% to -14%, with all but two being above -7%.

The big take away from the above table is that, nationally, the smallest and the largest retailers had the smallest percentage declines in their number of enterprises between 2007 and 2012.

Among the very small retailers, the drop in enterprise numbers among those with 10-19 employees was double that of those with 0-9 employees. This was rather counter intuitive, given my prior belief that the very smallest retailers were the most apt to fail during economic downturns. It may well be that the recession had fewer negative impacts on the smallest retailers than those that were somewhat larger. It might also be that:

• The really small firms were too weak and too small to get the kind of loans that the larger retailers got, but the recession then forced the borrowers to default on the loans
• The lower market share that the smallest firms must win to be viable, combined with their lower rents and labor costs, made it easier for new really small retail start ups to emerge as the recovery from the recession unfolded.

In many small and medium sized downtowns, retailers with 10-19 employees are the strongest in the district. Their loss would have been very injurious to these districts.

Small retailers may seem more prone to closures simply because there are so many more of them and they are consequently more visible. Between 2007 and 2012, there was a total reduction in the number of retail enterprises of 62,198, of which 51,592 were from the enterprises with <20 employees. Most folks will see a lot of small retailer closures, but not know that proportionately, their failure rate is lower than that of other retailers.

Have Their Sales Revenues Rebounded After The Great Recession?

The table below displays the differences in the annual receipts of retailers in 2007 and 2012 in two ways: a) by the difference in the total for each enterprise employment category and b) the difference in the average receipts of firms in each enterprise employment category. The table also has a column showing the percentage decrease in the number of firms in each enterprise employment category.

Overall, taking into account an inflation factor of 11% between 2007 and 2012, all retail enterprises had a -4.1% decrease in total sector receipts, while the receipts of the average firm went up by 6.1%. This ironic pattern occurs in all but one of the enterprise employment categories analyzed: the average firm receipts are better than the employment category receipts. One strong reason for the stronger average firm revenues is that there were fewer firms to share in the category receipts. While the Great Recession undoubtedly reduced the number retailers, it may have also culled out the weakest and allowed many of the remaining retailers to earn more revenues.

Unsurprisingly, the largest retailers, those with 500+ employees, had the highest growth in revenues during this time period in terms of both employment category receipts, 2.5%, and average firm receipts, 12.2%.

Among the “small” retailers, those with <500 employees, both the category receipts and the average firm receipts had a decline of -3.4% between 2007 and 2012. The “very small” retailers, those with <20 employees, did worse as an employment category with a -10.4% decline, but somewhat better for the average enterprise with a -1.7% decline.

However, among the “very small” retailers” there were some very interesting results. Those with 5-19 workers had positive revenue growth for the average firms:

• Retailers with 5-9 employees had a growth in average firm receipts of 3.6%, though their category’s receipts fell by -6.9%
• Retailers with 10-14 employees had a growth in average firm receipts of 2.7%, though their category’s receipts fell by -13.4%
• Retailers with 15-19 employees had an average growth in receipts of 1.3%, though their category’s receipts fell by -18.6%.

My Take Ways

I think that I was seeing many of the small retailers who had growing receipts on my field visits that I have written about.

The picture I get from this analysis is that:

• Small retailers definitely have been reduced in number, but surprisingly not in any greater proportion than large retailers
• Because there are so many of them, their closures are more visible, so they may seem to be more prone to close
• About one-third of the very small retailers, those very likely to be found in small and medium-sized downtowns, managed to have positive revenue growth through the Great Recession and into the New Normal for our downtowns. To keep that growth in perspective: the large retailers had average enterprise revenue growth of 12.2%
• Even the smallest retailers, with 0-4 employees, averaged a receipts decline that was just -1.7%. That, for instance, was better than that of the -3.4% for the retailers with <500 employees
• The small retailers may not be having robust success, but, they sure are doing a heck of a lot better than I – and many others – thought they were doing
• The Great Recession, by reducing the number of small retailers, may have helped the remaining ones get stronger.

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