By Sabrina Escobar
Susan Prunty's bakery in Medford, Ore., sold about 25 Christmas cookie decorating kits through the middle of last December, complete with a dozen freshly baked sugar cookies, buttercream frosting, and sprinkles. This year, through midmonth, Delish Bakery sold only three.
Prunty understands people's hesitation, given the kits are priced at $45 each. "They could probably get this cookie kit at Walmart or something for $12," she says. "It doesn't taste the same, but when people are thinking about the cost versus quality, they're like -- it's fine."
If 2025 has been a tough year for the country's largest retailers, it has been even more challenging for small businesses like Prunty's. Main Street businesses typically operate with lower profit margins and fewer resources than their big-box counterparts, making it harder for them to cope with tariffs, inflation, and erratic consumer demand.
The holiday season -- which can account for more than a quarter of annual revenue for small businesses -- has brought little reprieve.
While Americans continue to assert their commitment to supporting Main Street, cost-of-living concerns seem to be holding them back. An Intuit QuickBooks shopping survey of 6,000 consumers found that while 90% of respondents said it was important to shop small this holiday season, 42% said they were prevented from doing so by higher prices relative to big-box stores.
"For small businesses, how selective the consumer is really determines how much growth they're going to see," said Taylor Bowley, an economist at Bank of America Institute.
People have been spending more this year at big-box stores than specialty retailers, lured not only by lower prices but wider product assortments and convenience. Small Business Saturday, or the Saturday after Thanksgiving, is aimed at encouraging people to shop small. It drove about $18 billion this year in consumer-reported spending at small businesses, about $4 billion, or 18%, less than in 2024, according to American Express' 2025 Small Business Saturday Consumer Insights survey.
To be sure, it isn't all bad news on Main Street. Business confidence surveys suggest that while many small-business owners are anxious, they are cautiously optimistic about holiday sales. Firms that cater to higher-income customers, or sell specialized products such as quality yarn, may be more insulated from worries about broader demand, given wealthier households' resilience in recent years.
Many small businesses are also guardedly hopeful about the new year, in part because they stand to benefit from a high level of tax refunds and new tax incentives in 2026.
Small-business profits, in the aggregate, are still in the black, but growth recently turned negative for the first time in a year and a half, Bowley said, citing Bank of America's spending data. The Chamber of Commerce quarterly small business index found that 79% of small businesses said the holiday season was important for their overall profit this year, up from 70% in the year-ago quarter.
"We can be making more money in sales and still be kind of struggling behind, which I think lots of small businesses will tell you," said Courtney Kelley, co-owner of Philadelphia-based yarn distributor and retailer Kelbourne Woolens.
As to what is crimping profit margins, take your pick: tariffs, goods and labor inflation, higher shipping costs, high rent, even fluctuations in commodity prices. For example, since 2019, global cacao shortages have quadrupled the price of the 35-pound box of chocolate Prunty uses in her bakery.
Staying in business while navigating these challenges has required difficult trade-offs, including price hikes.
Aparna Neelakandan opened her online shop, Magnolia & Marigold, selling handmade Indian crafts just as President Donald Trump imposed a 50% tariff on imports from India. Because she imported some of her inventory earlier this year, she hasn't had to raise prices across the board. But she has had to mark up new inventory. Pre-tariffs, she could sell a handmade journal for $10.99. To make that same margin now, she would have to sell it for $20.99. Afraid to spook customers, Neelakandan has listed the new shipment of journals at $18.99.
The net percentage of small-business owners raising prices in November rose to 34%, a 13 percentage point increase from October's level, according to the latest NFIB Small Business Optimism Index. That marked the biggest monthly jump in the survey's history.
"We knew it would come because how long can you eat up bolstered inventory and absorb cost increases without failing to meet payroll?" said Thomas Sullivan, senior vice president of small business policy at the U.S. Chamber of Commerce.
But as Kelley, the yarn distributor, recently found out, even price increases and decent sales aren't enough to offset increased costs. After her costs jumped roughly 20% this year, largely tied to tariffs on yarn imported from the European Union and Peru, Kelley was forced to lay off a couple of longtime sales representatives.
"We kept people on for a long time out of loyalty and care, and sadly we could not afford to do that anymore," Kelley said. "In all the years we've been in business, that was probably the worst decision we've ever had to make."
The trade-offs smaller businesses are making could have repercussions beyond the holiday season, Sullivan says. Even new tax incentives, designed to encourage capital investment, aren't tempting many business owners to plow more money into their companies. The Chamber of Commerce survey found that 44% of small retailers are planning to increase investment, even though 64% said they expect revenue to increase in 2026.
Kelbourne Woolens, for one, delayed the release of two new yarns Kelley had hoped to launch this year because of the trade uncertainty. And while the team is exploring domestic manufacturing options, it has yet to take the plunge because it will likely be more expensive.
Prunty is also rethinking whether to add new products to her menu. She recently considered shutting down the bakery when her lease ends and returning to a corporate job. Ultimately, though, she's committed to keep going despite not knowing if business will improve. Giving back to her local community is worth the risk, she said.
Now it is up to consumers to help her bring home the dough.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 24, 2025 03:30 ET (08:30 GMT)
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