Small Businesses Go Digital at Three-Times Pre-Pandemic Levels
To shed light on the impact the global health crisis – and ongoing recovery – has had on small businesses globally, Mastercard today released Recovery Insights: Small Business Reset. Looking at 19 markets around the world, the report reveals that sales at small- and medium-sized businesses (SMBs) lagged larger companies by up to 20 percentage points at the peak of the crisis. However, spending has recovered in 2021. Total sales at SMBs rose 4.5% through August 2021 year-to-date compared to the same period in 2020, while e-commerce sales are up 31.4%.
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“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.”
Drawing on the Mastercard Economics Institute’s new Small Business Performance Index* of aggregated and anonymized sales activity within the Mastercard network, Recovery Insights: Small Business Reset identifies several key trends:
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- 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.
- 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.
- 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.
- 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%).
- 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.
“Supporting neighborhood businesses has been a rallying point throughout the pandemic. However, the challenges faced have been very real, due to their dependency on local markets, local supply chains and tighter cash flows,” said Bricklin Dwyer, Mastercard chief economist and head of the Mastercard Economics Institute. “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.”
