Poor sales lead to shuttered stores

Small business owners say weak spending is their biggest problem, according to a new survey -- and few see improvement on the horizon.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Emily Maltby, CNNMoney.com staff writer

9 stores: How we're coping
In Framingham, Mass., local businesses are struggling through the recession. We talked to dozens of entrepreneurs for a look at the future of Main Street.
When do you think the economy will improve?
  • In the next few months
  • In six months to a year
  • In a year or more
  • It's already on the mend
SOS: Send loans now
With bank lending to small businesses nearly frozen, these 8 entrepreneurs are among the thousands fighting for the credit lines and loans they need to keep their companies alive.

NEW YORK (CNNMoney.com) -- Poor sales are the number-one problem afflicting America's small businesses, and few business owners expect consumers to start spending again any time soon, according to the National Federation of Independent Business's latest monthly survey of its membership.

The NFIB noted in its August report, released Tuesday, that "rebuilding wealth -- more saving and less consumption -- is holding the spending recovery back." Of the roughly 2,000 business owners surveyed by the Washington-based trade association, 32% called slow sales their top problem, and the majority think their sales will continue to decline through the next three months.

When sales drop too far, businesses are being forced to shut down. In the first quarter of 2009, there were 14,319 business bankruptcies in the U.S. -- a 64% surge from 2008, and the highest of any quarter in at least the past 15 years, according to the American Bankruptcy Institute.

Todd McDonald, owner of Wine Vault in Dublin, Ohio, says he started seeing a drop in foot traffic in his wine store in July 2008 -- and those who come in are spending less. "Historically, I may have sold on average $25 to $30 a bottle, but now everyone wants to spend under $20," he says. "The last couple weeks have been a few of the worst weeks we've ever had, and it's getting worse."

McDonald, who has run his shop for more than five years, says that the stagnation of consumer demand is his greatest challenge at the moment. Taxes, the runner-up top problem in the NFIB's survey -- 22% called it a major concern -- are not on his radar right now.

"When you are just breaking even, there simply isn't a lot of tax impact," he says.

But other business owners who are worried about their tax burden may be forecasting into the future and looking nervously at the federal government's spending plans.

"Nineteen months of recession are wearing heavily on Main Street," Bill Dunkelberg, the NFIB's chief economist, said in a statement. "Now [business owners] are expected to finance the new experiments of Congress and the President such as health care reform, auto industry bailouts and union pension fund bailouts."

McDonald admits that the current health care reform debate has him nervous. With one full-time and one part-time employee, he anticipates having to shutter the wine shop if he's required to pay for health insurance for his staff. "I'll liquidate inventory and close the doors," he says. "It's a burden I just can't accept."

A more pressing problem McDonald faces is the tight lending market. "We're at stage where it's literally almost hand-to-mouth. The absence of a line of credit has gotten to the point where, if I get to the holiday season, I won't have the resources to invest in the inventory I'd like to have," he says.

After approaching several banks, he decided to ditch the idea of getting a business loan because the quoted interest rates were too high. He's using savings and a personal credit card to finance his store's inventory purchases, but the interest rate on that card is also climbing.

"Until financial institutions become willing to lend to the broader foundation of our economy, small businesses will simply remain in survival mode," he says. To top of page

To write a note to the editor about this article, click here.

QMy dream is to launch my own business someday. Now that it's time to choose a major, I'm debating if I should major in entrepreneurial studies or major in engineering to acquire a set of skills first. Is majoring in entrepreneurship a good choice? More
Get Answer
- Spate, Orange, Calif.

More Galleries
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Royal wedding: How much will it cost? Meghan Markle's wedding to Prince Harry could cost millions once security is included in the bill. See how the costs break down. More
Robot co-workers? 7 cool technologies changing the way we work Experts believe humans and machines will work much more closely together. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Updated 4:04 pm to add recent bankruptcy stats.