After weathering a year largely overcast by fears of a looming recession, business owners are feeling more buoyant as they look ahead despite lingering economic hazards and lukewarm expectations for the state economy, according to Providence Business News’ 2023 Summer Business Survey.
Since PBN’s winter survey, economists have largely walked back recession forecasts that clouded many business owners’ expectations – likely a contributing factor to their outlooks for the upcoming year, observers say, with 9 out of 10 respondents expecting that the performance of their business will improve or stay the same during that time.
More than half predicted their business would be better a year from now (53.2%, up from 46.4% six months ago). That remains a far cry from the winter of 2016, when the percentage of respondents forecasting a better year ahead topped out at 81.8%.
Still, businesspeople have reason for some optimism. Most are reporting level or improved results in their current operations, with 42.3% reporting an improvement in business activity compared with the previous quarter, and another 47.7% finding that business has remained the same.
Only 9.9% experienced a weakened performance, an improvement from last winter when 15.3% of respondents said things were worse than the previous quarter and a year ago when 11.9% reported a decline.
At the same time, expectations for Rhode Island’s economy as a whole aren’t as bright. Fewer respondents predicted that the state’s economy would improve slightly or significantly over the next 12 months (33.1%) compared with last winter (34%) and a year ago (38.4%). Yet more believe the local economy will remain the same (31.3%, compared with 22.9% last winter and 17.3% a year ago).
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FINISHING TOUCH: Syroya Eugene, owner of Syroya’s Bakery in North Providence, adds frosting to a buttercream-filled vanilla cake.
PBN PHOTO/MICHAEL SALERNO[/caption]
Syroya Eugene, owner of Syroya’s Bakery in North Providence, can relate to an underlying sense of hope despite headwinds.
Taxes stand out as a particular concern to Eugene, who launched her business in Pawtucket in 2020 and two years later moved to Mineral Spring Avenue in North Providence. She’s looking to grow the bakery beyond its four part-time employees but says it’s an uphill battle.
“Our taxes are just really high,” Eugene said, and expenses such as employer taxes and annual fees to register the business add up to hit small businesses hard. “For a business like me, just starting out, hiring employees, it’s very expensive,” she said.
Eugene is far from alone in her opinion. In the latest PBN survey, taxes ranked as the second-greatest challenge facing Rhode Island businesses at 45.9% of respondents saying taxes were a big problem (up from 36.9% a year ago).
A shortage of qualified workers remained ranked No. 1 among challenges with 60.4% of respondents saying they face that difficulty, but that’s down from 74.8% a year ago, an indication that that the job market is loosening a bit.
Meanwhile, access to capital appears to be a growing problem, perhaps a sign that banks have raised their lending standards as talk of a recession heated up over the last year. While it ranked low on the list of challenges faced by businesses, the number of respondents who said getting capital is difficult more than doubled from 3.9% a year ago to 10.8% in the most recent survey.
There are encouraging signs elsewhere. While the vast majority of businesses (76.6%) still say they’re paying more for materials and supplies than the previous quarter, that number has declined from a high of 90.6% a year ago.
Eugene is feeling good about her future. Sales have improved in the last 12 months. And while inflation remains high, Euguene finds that after a long surge, the momentum seems to be slowing.
“I’m positive, but I know I have to put in a lot of work to make this work,” she said. “I’m going to have to push, push, push to make sure that I advertise and get the word out that I’m here, and put out a good product and good customer service so that I continue to grow.”
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WAITING FOR A SIGN
Business activity is improving slightly but remains well below summer 2021 levels. Businesses reporting year-over-year profit gains, meanwhile, dipped since the winter to a 2½-year low, tamping expectations for improvements in the economy to their lowest level since PBN began doing the survey in 2008.[/caption]
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CREEPING CONCERNS Perennial business challenges continue to be led by a shortage of qualified workers, but concerns about taxes and government fees/bureaucracy are increasing – though still well below historical highs.
*Government fees/bureaucracy combines answers from most recent survey for state government fees/bureaucracy and town/city government fees/bureaucracy and eliminates duplicate answers[/caption]
‘SO TYPICAL’
The PBN survey, which has been conducted twice a year since 2008, is not scientific. PBN sent 22 questions to 1,459 businesses statewide in the newspaper’s database. One hundred fifteen returned the survey, a mix of businesses ranging from manufacturers to banks, construction contractors to lawyers, retailers to real estate agencies. While the respondents included some of the state’s largest employers, most were small and midsize companies.
Edward M. Mazze, a distinguished professor of business administration at the University of Rhode Island, says business owners do have reason for optimism.
“I don’t see an imminent recession that’s going to hit Rhode Island in the next 12 months, [and] because inflation is beginning to cool off, companies are beginning to think about hiring again,” said Mazze, who helped design the survey.
And despite lingering inflation, “consumer confidence is very high,” Mazze said. “People are spending money. They may not be buying houses because of the interest rate on mortgages, but they’re traveling more. Restaurants aren’t empty.”
Susan Mocarski understands why there might be a returning feeling of positivity, but the founder and owner of Providence-based outerwear company Cleverhood LLC says many business owners continue to face formidable obstacles in sustaining their businesses.
A tendency to remain hopeful is “so typical of us small-business owners,” Mocarski said. Without some propensity for optimism, “you wouldn’t go into small business,” she added.
But underneath those hopes, Mocarski, whose company specializes in the design and manufacturing of rainwear for cyclists, senses anxiety in the small-business community. She’s keeping the projections for her own business conservative as she looks at the next 12 months.
“In terms of the optimism … I guess I don’t share that,” Mocarski said. “I think we’re kind of in a tough spot. Our numbers aren’t down [at Cleverhood], but they’re not at the projected rate.”
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CAUTION RULES Uncertainty about the economy isn’t enough to stop nearly half of survey respondents from looking to hire in the next quarter. But nearly 8 in 10 say they’re not ready to dig deep for any major investments.[/caption]
Cleverhood, which has long held a sizeable international clientele, has also had to cut back on its global distribution due to heightened tariffs and duties. In some cases, a garment costing $99 could cost around $350 after an international customer pays these fees, Mocarski said.
About 30% of the company’s business still comes from outside the U.S., Mocarski says, but that’s down from around 40% before tariff and duty hikes forced a change of strategy.
The mix of optimism and anxiety is clear in conversations that Lauren Slocum, CEO and president of the Central Rhode Island Chamber of Commerce, is having with her members.
While many aren’t as worried about a possible recession, she says, concerns about staffing difficulties and inflation have remained high.
“Businesses aren’t hopeless,” she said, but “they’re frustrated. They’ve got some real challenges and difficult decisions.”
Brenda Santos, chairperson of the East Bay Chamber of Commerce, says inflation is one of the driving forces behind the woes of many businesses.
“The cost of materials has gotten higher, and therefore, they’ve got to raise their pricing,” Santos said. “And then it’s a trickle-down effect. People don’t want to work for pennies anymore, so [businesses] also have to raise their salaries in order to attract talented employees.”
Indeed, a question in the PBN survey about the effects of the rate of inflation on businesses indicated the breadth of the negative impact.
Only 1.8% said inflation has had no effect while 62.2% said it will force them to increase salaries and wages, 55.9% said it would increase their fixed costs, 51.9% said they will pay more for materials, and 45.9% will have to increase their prices.
To a lesser extent, some respondents said inflation would make it more difficult to keep their customer base (26.1%) and would make it more difficult to obtain a loan (17.1%).
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CURBING COSTS
Businesses continue to look to government for help in curbing costs more than anything else, though reducing red tape, seeking workforce development and tax incentives are all holding steady on wish lists.[/caption]
GROWING EXPENSES
Keri M. Cronin, co-owner of DISH boutique in Warren, says her business has been somewhat spared from inflation due to its niche, higher-end offerings that focus on sustainability and ethically sourced materials. Cronin also purchased the store space 18 years ago, cutting out monthly rent payments.
But Cronin, who also sits on the Warren Town Council and runs the Discover Warren tourism information center, says some in Warren’s business community have paid the price for the town’s successful downtown renewal over the past decade.
“That has ended up being an issue, where Warren has become this great destination and has got all this shine and buzz,” Cronin said. But as the town’s profile rises, “what happens is out-of-state, out-of-community people come in and buy buildings and raise the rents.”
As a result, “the small-business people who are the backbone of the community, who created the attention, who are part of the reason why people want to come here simply can’t afford their rents to be doubled and tripled. It’s unreasonable, and it’s really tone deaf and predatory,” Cronin said.
The survey indicates Warren isn’t the only place where finding affordable real estate has been a problem. An increasing number of businesses are feeling the effects of rising rental and building costs (12.7% said it has increased the most over five years, up from just 3.8% a year ago).
Michael Giuttari, founder and president of MG Commercial Real Estate Services Inc., has seen the trend toward out-of-state buyers taking interest in local properties, which is raising asking prices.
“Over the summer we’ve had some bigger sales, and they’ve been out-of-state companies coming into Rhode Island,” Giuttari said.
And slow construction rates – a long-standing issue that has also had dire impacts on Rhode Island’s housing availability – are exacerbating the problem for businesses seeking commercial space.
“A continuing Rhode Island problem is there’s no construction,” Giuttari said, “which causes us to not have new industrial space or office space to lease to people.”
In terms of fast-growing expenses, rental and building costs ranked third in the survey.
Four in 10 respondents (40.9%) said salaries of new hires are the expense that has grown the most over the last five years, although that percentage has decreased from nearly half (49%) a year ago.
As it has in the past few surveys, health insurance costs ranked second, with 26.2% marking it as the expense that has grown the most in five years.
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CUTTING COSTS: Kurt Harrington, founder and owner of Something Fishy Inc. aquarium services in Warwick, says rising health insurance rates and business taxes have cut into some of the company’s employee benefits.
PBN PHOTO/MICHAEL SALERNO[/caption]
Kurt Harrington, founder and owner of Something Fishy Inc. aquarium services in Warwick, knows this issue well.
He says rising health insurance rates and business taxes have cut into some of the company’s employee benefits, noting that Something Fishy used to cover all health insurance costs for employees.
Now, that’s not sustainable, Harrington says. In fact, when the business renewed its insurance plans in April, it ended up switching insurers after it was informed of a 25% rate increase. The new plan is more affordable but offers less coverage.
“We used to have a really rich offering to our employees,” Harrington said, and these benefits were “a tool we use to attract team players. … But when you see those insurance rates increase, you have to mitigate costs elsewhere.”
The business has still managed to attract employees, but Harrington said it will be a challenge to continue to offer competitive wages.
“I like that we’re in a business that relies on people, but we’ve got to be able to maintain a higher pay than what you can get in traditional shift work,” he said. “That’s been very challenging to do.”
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CHIN UP
After dropping below 50% over the past year for the first time since 2008, a slight majority of businesses are again expecting better things in the coming year.[/caption]
LOOKING FOR HELP
Various challenges highlighted in the survey have also hit All About the Look LLC in North Providence, with one problem often fueling another. The eyelash studio started out strong in 2013, says owner Hollee Freeman-Nunes, but the studio has had trouble recovering from COVID-19 shutdowns. The studio’s team of four has since shrunk to just Freeman-Nunes and her daughter.
“Anything I make, I don’t take home because we have to pay rent, we have to pay insurance, we have to buy supplies,” Freeman-Nunes said. “We can’t hire someone because there’s not enough demand,” she added, and with minimal staffing available for the task, “it’s probably because we don’t do the marketing as much as we should.”
Financial assistance is often out of reach. As a woman- and minority-owned business, Freeman-Nunes says, the challenges of capitalizing on these opportunities sometimes felt magnified.
It’s not for lack of effort. Freeman-Nunes has reached out to nonprofits, chambers of commerce and state offices in search of assistance but said she often left those conversations lost on what to do next. One agency advised her to start another entity to aid in government procurement, Freeman-Nunes says.
“I just feel like I’m kind of introduced to these things, then left alone to try to figure out how to start a new business,” she said.
When asked about important actions state government could take to support businesses in the year ahead, reducing the cost of doing business in Rhode Island remains highest on the to-do list, with 62.2% of those surveyed marking that as important, down from 67.6% a year ago.
Reducing red tape associated with doing business in Rhode Island ranked second-most important, with half the businesses saying that would be a crucial action (up from 33.3% in summer 2022).
Supporting workforce development programs (48.6%, down from 49.5% a year ago) and providing tax credits and incentives (44.1%, up from 43.8% 12 months ago) rounded out the top four suggested actions. Kelley McShane, co-owner of beverage company The Granny Squibb Co. LLC, notes a wealth of mentorship resources in Rhode Island but says that substantial gaps in material resources remain for certain businesses.
“We need a substantial investment in food and beverage manufacturing in Rhode Island,” McShane said. “We’re losing brands because there are minimal options.”
Granny Squibb’s, for instance, does its co-packing in New York, which had the closest facility capable of big-batch bottling and pasteurization.
Eugene, of Syroya’s Bakery, also highlighted a need for more funding opportunities.
“Not even just free funding but more programs that banks offer to help businesses build their credit, to help them learn how to get the capital they need,” she said. Eugene would also like to see more officials making their presence known in the small-business community.
“Sometimes we go into this blindly,” Eugene added, “and there are resources we don’t know about, there are funding or ways to raise capital as a small business, and I really hope there’s more education on that, and more access to it through the banks and through the state.”
