Small Businesses That Mostly Sell Online Fend Off Big Retailers

PYMNTS Intelligence’s data suggests that small to mid-sized businesses (SMBs) that sell mainly online have a competitive edge over SMBs that sell mainly through physical locations. In fact, they have better revenue trajectories. This positions them to take advantage of growth strategies such as innovation and worry less about their big competitors. In turn, in-store SMBs that can expand their online presence may stand to benefit.

These are some of the findings detailed in “SMB Growth Report: Online vs. In-Store SMBs,” a PYMNTS Intelligence exclusive report. This edition examines the economic and competitive factors impacting online SMBs compared to their in-store counterparts. It draws on insights from a survey of 500 SMBs across industries between July 9 and July 24.

• Key Findings
• Conclusion
• Read More
• Methodology

Key Findings

Small businesses online have higher average revenues and better revenue trajectories than those selling mainly in-store.

More than half of SMBs make most of their sales online and are reaping the benefits. SMBs that mainly sell online have average annual revenues 21% higher than those that primarily sell in physical locations. Further, the opportunity to make the most of online sales channels means better future revenues. In fact, 52% of SMBs that primarily sell online report increasing revenue trajectories compared to 42% of those that sell mostly in-store.

Having a smaller online presence may mean a dip in revenues. Among small businesses that primarily sell in physical stores, 21% reported declining annual revenues. This compares to 15% of mostly online SMBs that reported a decline in annual revenues.

Online-focused small businesses take advantage of external financing more than in-store focused SMBs.

Access to financing can make the difference between expanding or not. SMBs that primarily sell online report slightly more access to financing sources than SMBs that sell mainly in-store. While 52% of online-focused SMBs can access some form of credit, 48% of physical SMBs have access.

SMBs that sell mostly online are 36% more likely to use financing sources than those primarily selling in-store. With more utilization of financing, SMBs mainly selling online can focus more on growth and opportunities to expand their businesses.

SMBs selling primarily in-store are 78% more likely to have access to financing but not use it. The data suggests these SMBs may not know how to leverage the opportunity or have concerns about using financing.

Online small businesses can focus on innovation and not the big competition.

Small businesses’ tolerance for risk appears to correlate with which channel they use to sell most of their goods. Mostly online SMBs have the flexibility to focus on riskier innovative growth strategies. Meanwhile, in-store SMBs are more risk averse and focus on cost cutting as a growth strategy. The data is revealing. Online-focused SMBs are 25% more likely than those selling mostly in-store to have implemented any growth strategy in the last year.

Small businesses selling mostly in-store are also more likely to not put any growth strategies at all into action. Among physical SMBs, 12% did not implement a single growth strategy in the last year. Just 3.6% of online-focused SMBs said the same.

Online-focused SMBs often have big players looming over their shoulders. However, they are less concerned than in-store SMBs about competition from bigger retailers. While 31% of mostly in-store SMBs that have concerns about their survival worry about competition from bigger retailers, 18% of their online-focused counterparts have similar concerns. The data suggests that online-focused SMBs have a competitive advantage.

Conclusion

Online SMBs tend to have a leg up over SMBs that sell mostly in-store. Online-focused SMBs have larger revenues, more promising revenue trajectories and greater access to financing than predominantly brick-and-mortar SMBs. Small businesses that rely on in-store sales are more focused on cost-cutting. This may help them temporarily keep up with the big-name competitors but cost them their ability to innovate.

Read More

PYMNTS Intelligence has the information you need to know about SMB growth. To stay up to date, subscribe to our newsletters and read other recent SMB reports.

• Small Town SMBs Are Confident Even Without Big City Profits
• Instant Payments Book a Long Stay With Independent Hotels
• Embedded Lending Finds Traction With Consumers and SMBs
• Insurance Industry Adopts Instant Payments Amid Rising Consumer Demand

Methodology

“SMB Growth Report: Online vs. In-Store SMBs,” a PYMNTS Intelligence exclusive report, is based on a survey of 500 Main Street SMBs in the U.S. generating annual revenues of $10 million or less conducted from July 9 to July 24. The SMBs analyzed represent various industries, including retail, professional services, construction or utilities, personal and consumer services, and hospitality. The report explores how Main Street SMBs that sell mostly online have a competitive edge over SMBs that sell mostly in-store.