Small Business Saturday: Small retailers outperform

It appears bigger isn't always better.

As consumers increasingly seek unique merchandise in a sea of sameness, aim to give back to their local communities, and gravitate toward stores that are easy to shop, data from MasterCard Advisors shows that small retailers have been outperforming their larger counterparts for more than a year.

And if current consumer trends are any indication, these small players are poised once again to outsell their mainstream competitors during the holiday shopping season and beyond.

Woman shopping boutique
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According to MasterCard Advisors, small business retail over the past 20 months has accounted for 72.4 percent of the growth in total retail sales. What's more, over the past 12 months, they've made up 39.6 percent of total retail sales. That's the highest penetration MasterCard has seen over any 12-month period since it began tracking the metric in 2004.

But a renewed interest in small business isn't only the result of consumers' changing preferences. It's also occurring against a backdrop in which shoppers are, overall, on more stable financial footing — meaning that many are willing to shell out extra cash for the right product.

"I do think that uniqueness is what everybody's chasing," said Rod Sides, leader of the retail and distribution practice at Deloitte. "Whether it be a unique experience or whether it be a unique gift, those local boutiques kind of have that flair."

Deloitte's holiday spending survey, which polled more than 4,000 consumers, found that uniqueness is one of the main reasons why shoppers will shop local this holiday season. Of the 70 percent of respondents who said they will visit small businesses or boutiques, 54 percent said they would do so to find one-of-a-kind gifts. That was second only to "support the local economy," which ranked first at 59 percent.

Consumers appear even more interested in shopping small during the holidays. Among the 72 percent of people who told Deloitte that they would shop at a new or different store this season, more two-thirds said they would do so at a small or local business. Festivals and fairs also made the list, at 26 percent.

Chris Poelma, president and general manager of small business at NCR, a technology company, said millennials are a big contributor to this renewed interest in shopping small.

"Millennials have a different view of the world," Poelma said, adding that they understand shopping local means their dollars ultimately go back into the community.

Not surprisingly, it also helps more of their dollars go into the pockets of small shop owners. As the economy improves and consumers are inundated with discounts, analysts have repeatedly said that those retailers with unique merchandise will be able to charge higher prices.

Though small retailers haven't been completely immune from marking down their products, Poelma said he's seeing larger discounts from the big-box players, and smaller discounts from small retailers.

"They can't play the big price war game that they tried in the past," he said, referring to the years after the financial crisis when a number of businesses went under. "They're differentiating their product as opposed to just discounting their product."

Small retailers are also benefiting from time-starved shoppers who don't have time to navigate large department or discount stores. Several large-format retailers are now replicating this small-box feel, with companies including Target, Wal-Mart, Saks Fifth Avenue and Kohl's all having opened or planning stores that are a fraction the size of their usual locations.

"Ease is a critical factor in successful retailing today," said Joe Jackman, CEO of Jackman Reinvents.

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Several national retailers are also curating the merchandise at individual stores to include more local products. Target, for example, earlier this year issued an open call to L.A. designers and vendors, so that they can incorporate some of their products into the area's stores.

Overall, MasterCard Advisors' Sarah Quinlan said she expects the trend toward small business shopping to strengthen, as consumers continue to crave experiences.

"People want a differentiated experience and inventory, and their purchases reflect that," she said.