Inflation is Not All Bad for Business

If you run one of these businesses, you might actually see growth in the near future.

Inflation doesn’t need to ruin your art business. Photo by Andrea Piacquadio on Pexels.

We’ve all heard it said: inflation negatively impacts purchasing power. The reality is a little more nuanced, though. This is because customers with less purchasing power tend to be more discerning. This is good news for small businesses who know how to capitalize on this.

So, what businesses tend to do well when interest rates go up? Well, that’s what we’re going to look at more closely. As you will see inflation isn’t all bad news for small business owners. Even if you don’t specialize in these products/services, perhaps you could refocus your products slightly to meet the new demand.

Consumer Staples

When tightening their collective belts, consumers look for products that will last, that provide better value and if possible, products that meet more than one need. Traditionally, consumer staples from foods to household products see a slight bump in sales. Let’s dig deeper.

For food products, people are looking for higher quality, more filling, and more nutritious options. Many small businesses that sell food offer healthier options than what the big stores offer. For many, this is their main reason for existing. If you offer organic products, then show how not all organics are the same (a common suspicion). If you sell health foods or even supplements, you should show how your products are superior to the big brands.

Another staple that does well during inflationary periods is cosmetics. This is a perfect opportunity to show how your products are less toxic, only include natural ingredients, and will last longer than what your customers might get from the big brands. You need to show that your products are a better value, and chances are that is already your message if you are selling cosmetics.

As for household products, from detergents to gadgets to tools, the same message is what consumers are looking for. Does your dish soap last longer and how will it save your customer money over time? Do you sell a gadget that will save energy? Or do you sell tools that are stronger and more durable? If so, then you have an opportunity to increase your sales during this economic period.

Services

The one type of service that people are keenly interested in when the economy tightens is money-related services. If you are a wealth manager, then it’s likely that this is a perfect opportunity to find new customers. Focus on people who don’t currently have one, and it’s likely you will quickly find people who need your help.

Of course, independent accountants and bookkeepers will also be in a good position to grow their businesses. Small businesses just like yourself are looking for your services to help them navigate these difficult times. If you can save them money, then you have a perfect opportunity to find new clients and show them how.

Related services businesses can do well here too. When the economy turns people often need help, even if it’s not directly with finances. If you are an executive coach, for example, you’ll need to work a little harder to make your case than the bookkeepers above, but only a little. People who have economic difficulties also need to know how to cope with downturns, layoffs, pivoting, and personal coping skills. This is where you come in and save the day.

Real Estate

It’s a well-established adage that real estate is the best hedge against inflation. But if money is tight, then a big purchase like real estate is likely not on the minds of small business owners… or is it? Chances are some of these small businesses are looking to downsize. This is a great opportunity for real estate agents, as well as those working in the industry, from loan specialists to office furniture dealers, to step in and offer their expertise.

For example, if you are an interior decorator, you may think that this is going to be a difficult time. So what if you shifted your focus from homeowners to small businesses? You could offer services that make more effective use of small spaces after they downsize. Your skills in creating space and light will be much needed in these situations.

If you want to jump on the real estate bandwagon in this economy, it may be necessary to be more creative with your business and think outside the box. Do you sell wall-art pieces? Then consider focusing on ones that create more space by using more reflective colors and materials. Do you sell homeopathic scented products? Then you may want to shift away from warm, tight, and cozy fragrances during this time.

One more way to take advantage of real estate without actually buying a property is to invest in REITs (Real Estate Investment Trusts). Even if you don’t have the spare money to invest directly, perhaps you could redirect a portion of retirement accounts into REIT-related securities. This will allow you to take advantage of an investment that tends to go up while the rest of the economy doesn’t.

Energy

If you’re going to invest in REITs, then you should also consider energy-related securities. These also tend to do well when inflation rates rise. You might think that other than investing, there aren’t many ways that small businesses can benefit from an emphasis on energy… but you’d be wrong.

The government is keenly aware of how energy prices impact the voting public, so they typically keep prices low and offer mitigations, especially for businesses. This is where you can benefit. Have you considered adding capacity to your solar panels? Then this is the time to do it. Don’t have solar panels yet? Then that should be a priority. There will likely be new incentives, tax breaks, and cost-saving options available. You’ll lower your energy bills too.

Of course, there are many related products and services too. If you’re an independent electrician, then emphasize that you also install ceiling fans and replace traditional light fixtures with LED lights. Do you sell motorized toys? Then look for more efficient batteries and maybe even solar-powered options. Do you manage a fleet of delivery vans? Then consider replacing them with electric or hybrid-powered vehicles.

As above, some businesses will need to be creative to align with this trend. Do you sell food products? Then this might be a time to focus on options that don’t require heating or cooling. Are you a landscaper? Then consider switching to more efficient battery-powered tools over gas-powered ones.  (your clients will thank you too). Are you a copy editor for small businesses? Suggest that they emphasize their green credentials.

Luxuries

Just as it is well known that real estate and inflation offer hedges against inflation, it is also said that luxury goods tend to not be affected much by inflation. Now obviously luxury goods are a bit on the opposite side of energy efficiency, but for small businesses that need to survive, it must be included here.

The reality is that those who are well off already will still be well off when inflation rises, so they continue to buy luxury products. The truly wealthy who buy these products have advisors and are typically well-informed about the economy, so they can weather these cycles. I’m going to even speculate that they may even buy more luxury goods during this time to help them ignore the economic woes of others.

In any case, this is particularly good for people who produce fine art, jewelry, luxury handbags, and fine clothing, for example. I still believe that all consumers are more discerning during inflationary periods, though. This is why products that require specific skills, talent, and difficulty will typically do well. Customers want higher value and well-made products offer just that.

One area that I am knowledgeable about is Hi-Fi equipment. Smaller companies that offer premium, high-quality, and beautiful products have an opportunity to do well during this time. This stands in contrast to larger production and more utilitarian products that tend to do less well.

If you are an artist, this may be a good time to offer some items as more unique and exclusive versions at a higher price point. I know this seems counterintuitive, but why not give it a try? If things aren’t selling, why not? You might be surprised. Also, consider that Apple just unveiled virtual reality goggles for a whopping $3500! We can assume that Apple has economic advisors that know what they are doing.

If you sell wooden figurines, then let your customers know where you source the wood, include photos of your workshop, and include a certificate of authenticity. You want to show them that you are offering a better value over the machine-manufactured mass-produced imported stuff they can purchase at Walmart. You want to justify the higher price.

Conclusion

Yes, it sucks that inflation rates are rising. I know I’ve seen my own sales drop too. Unfortunately, this is a fact of life – economies are cyclical. That said, it doesn’t have to be catastrophic if you can shift your emphasis a bit and let your customers know you are working with them to weather the downturn.

Even if you run a side business that isn’t related to the industries mentioned above, there is still opportunity. Are you a blogger? Then you should write about these topics. Are you a dog walker? Let your clients know that you use biodegradable poop-bags and only feed healthy treats. Do you sell leather wallets and purses? Then let your customers know how strong and durable they are.

When the customer’s purchasing power is limited, then that consumer wants higher quality from your products. Small businesses typically offer higher quality products already. So this is the time to let your customers know that.