Small businesses bracing for uncertainty in sales, hiring in 2023

Business owners are having a difficult time putting into words just what they expect as they prepare for 2023.

And according to those paying close attention to economic forecasts, the reason for that may be simple.

“It’s what everybody else says — the uncertainty. That’s probably the biggest thing,” said Diane Street, co-owner of the Lazy Llama, a home décor boutique that opened in Marine City in 2016. “Who knows what 2023 is going to bring? I don’t know how you can prepare for that. … We just keep going. We just move forward. We just order our inventory and keep our fingers crossed.”

This year has been dominated by headlines about rising costs, inflation and concerns about a future economic recession. University of Michigan economists last month predicted a recession as the Federal Reserve continues to raise interest rates.

But predicting how a recession will impact Michigan small businesses, as well as average consumers, depends on to whom you talk.

U.S. non-farm employers added 263,000 jobs in November, according to a Dec. 2 Bureau of Labor Statistics report, with an unchanged unemployment rate at 3.7%, as well as a rise in employment in a variety of sectors, ranging from the construction and manufacturing to local government and other service industries.

While the economic news was good, one of the employment categories to report a drop in job numbers was retail — something that, despite the uncertainty, business leaders and regional experts agree will be impacted by a 2023 recession no matter its severity.

Why retail is hit harder

Andrea Bitely, vice president of communications and marketing for the Michigan Retailers Association, said the the ups and downs of the state’s retail index this fall haven’t helped in the way of projections because “people are all over the place in their spending,” whether it’s at big-box retailers or small mom-and-pop stores.

“So, what we’re hearing from our members is they’re still looking at what they do with pricing,” she said. “The way that inflation has been hitting, people are looking at, you know, ‘Do I want to buy that?’ And that really impacts the gift-giving side of retail.”

Brighton retailer Sydney Plaskey, who owns Sunny's on the Corner, "a one-stop-shop for all things on trend" in women's fashion, said business has been strong, but she expects that to change after the holiday spike.

"There was a lot of parades and walks and that kind of stuff downtown here, so through the fall we stayed pretty busy and now it's holiday shopping, so I'm kind of in the thick of it all now and I'm waiting for that ball to drop I'm sure between like January and April," she said. "I expect to obviously for it to be not as busy just with the weather in Michigan and things like that and there's a lot of people around here that go to Florida or somewhere else for the winter."

The November jobs report came back stronger than some predicted overall, though Don Grimes, a senior research and regional economic specialist at the University of Michigan, said it was in line with what labor analysts expected.

He thinks things will “remain relatively strong” through the first quarter of 2023 with a static jobless rate and positive employment gains.

However, that may not last long.

“Of course, that also probably means that inflation will remain relatively high, and the (Federal Reserve) will probably continue to increase interest rates for the first quarter of next year. … Then, starting in the second and third quarter of next year, we think things are going to slow down, and in fact, we actually think we’ll get a mild recession in the second and third quarter.”

Uncertainty showing up in different ways

In the Thumb, other signs of preparing for a recession were more difficult to spot.

Some businesses continued to support local events, but Bryan Ulatowski, president of the St. Clair Chamber of Commerce, said they saw a total decline in sponsorships of 10% to 12%.

“People are worried (or) their business isn’t going to maintain what it has been,” he said. “So, they’re looking at it (like) it could be a little bit slower than what they were accustomed to, but I still think it’s going to be a good year for everybody.”

For the region at large, Thelma Castillo, president of the Blue Water Area Chamber of Commerce, said they’re still trying to get a grasp on how businesses are preparing for next year.

She credited a conversation in late November with Port Huron City Manager James Freed for requesting a survey to the chamber’s members — she said there are about 635 — to find out. She said they hoped to get it out “to get the pulse” this month.

“Questions I’m asking is like: Are you planning to continue to hire? Do you believe that there’ll be a recession? Are you deferring capital outlay expenditures?” Freed said. “Like if you’re going to expand or buy equipment, are you delaying that? I want to know these basic things.”

Street said her small-town boutique hasn’t made any huge changes to stock for next year, though Laura Merchant, president of the Marine City Area Chamber of Commerce, said other have, erring on the side of being conservative — just in case.

“We’ve had to look at our inventory,” said Merchant, who also owns the Mariner in downtown Marine City. “And first of all, there’s limitations on some stuff that comes in and when it comes in, so we are still having problems with items being available. Availability is an issue. That hasn’t changed.

“But I think that we’re being more selective of what we have, and maybe not having such a large quantity as we may have carried before. I don’t find that just with our retail. I think it’s pretty much a lot of people I’ve spoken to in the industry.”

'A lot of unknowns'

At Kean’s Store Co. in downtown Mason south of Lansing, the 94-year-old business, which sells everything from gifts and candy to clothing and jewelry, was busy all of 2022.

So much so, owner Teresa Wren said, it was challenging for staff to keep popular items — including candy, toys and other gifts — in stock.

“We’ve had to order heavily,” Wren said. “I feel like we can't keep up, which is telling me we're selling a lot and that goes through January until now. There sure are a lot of people coming into our store.”

Wren attributes some of that success to a change in how much emphasis her staff put on hosting special events this year. The pandemic convinced Wren it was time to minimize those efforts and focus on the basics — keeping in stock what customers are buying.

And while having a lot of inventory always makes her nervous, customers are buying what the staff is stocking, she said.

Despite inflation, the sales have made Wren optimistic for sales in 2023 at Kean’s.

“I think things will be good,” she said. “I really do.”

Still, Bitely said plenty of retailers are currently focused on getting back into the black, selling as much as they can before 2023’s first quarter and figuring out what stocks will look like long term.

Rosy's Boutique owner Kim Schaffer said her Brighton business had a good year last year but this year has been slower.

"Last year was great. It was a good year, but I think it was because they had all that extra money people had last year. They were spending it and now this year they don't have it, so, I just think that's it because this year has been super slow," she said.

Schaffer said she thinks slower traffic in stores is partially because people have shifted to online shopping because of the pandemic.

"People started buying on Amazon. They are all buying online," she said. "I think it's easy to stay at home in front of your fireplace and order and I think that stinks for the small businesses. Small Business Saturday was nice though. We had a great day that day. They really supported, so that was wonderful."

Street said she believes the Lazy Llama and other stores won't see any challenges until summer, adding, “I don’t think either way it’s going to affect us much going forward. I mean, we have to move forward.”

So far, their only change is not in how much stock they have, but the way they’re buying it for consumers.

“We do go on buying trips every year just for the industry, just for retail, and we didn’t go (more recently) because what happened with the shipping last year,” Street said. “We spent all this money going to these shows and ordering all this stuff, and we got back and we’re calling our vendors, going, ‘Where’s our stuff?’ … So, it was very difficult to get our inventory late this year. We got it, but we got it late, so I feel like I really don’t want to spend that money to go to shows when we can do what we need to do from here.”

Bitely admitted there are still a lot of unknowns.

But she said there are other signs of hope, pointing to the federal bill signed by President Joe Biden preventing a massive rail strike that loomed over retailers.

“There was a little bit of a sigh of relief this morning with that strike being taken off the table,” she said Dec. 2. “It was really freaking retailers out. … That means no shipping of goods by rail, which is huge. So many of our products, especially grocery products, are being transported by rail because it’s the most economical way to do it.”

Contact Jackie Smith at 810-989-6270 or jssmith@gannett.com. Contact Rachel Greco at rgreco@lsj.com. Contact Patricia Alvord at palvord@livingstondaily.com.

This article originally appeared on Port Huron Times Herald: Small businesses bracing for uncertainty in sales, hiring in 2023