Can Fraser Valley businesses survive inflation?
A look into why inflation is so high, how it has impacted small businesses in the valley, and what some are doing to cope with rising costs going forward.
Mountain biking changed Rocky Blondinâs life.
As a hockey and baseball player growing up, Blondinâs knees were shot by the time he was 16. But 20 years ago, at the age of 22, a college roommate introduced him to mountain biking and it helped build back strength in his legs.
âThrough cycling, because itâs a low-impact and high-strength sport for your legs, I basically rehabilitated my legs,â Blondin said. âI could sleep at night because my legs didnât hurt anymore.â
He dreamed of sharing his love of mountain biking with people in Mission, and opened Independent Cycles in the first month of the pandemic: March 2020.
The pandemic was bad for many businesses. But for bikes, it was a blessing. Blondin had a three-year plan on how to grow his business. But with the pandemic blowing up interest in bikes, by June of that year, Blondin had hit sales he hoped to achieve in 2023.
âThe biking industry took off like a rocket,â he said.
Then the pandemic, which helped him in 2020, exacted its revenge. With issues in the global supply chain and rising costs due to inflation, Blondin has had to navigate one pitfall after another to stay open.
âThe plan we laid out to start a community-focused, modest bike shop quickly turned into survival mode.â
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Why is inflation so high?
The inflation rate in Canada grew to 8.1% in June, a mark that hadnât been reached in nearly four decades.
The price of almost everythingâfrom gas to groceriesâhas skyrocketed, impacting both consumers and small businesses.
Itâs disruptions to global supply chains that are causing record-high inflation, according to Andrey Pavlov, a professor at SFUâs Beedie School of Business.
âNormally inflation happens because thereâs too much demand and not enough goods,â Pavlov said. âThis time itâs different because itâs driven by our inability to produce many things.â
Three years into the pandemic, Pavlov points to COVID restrictions as the lingering reason why supply chains havenât been able to facilitate the production of enough goods to meet the worldâs demand.
Attempts to boost the economy have increased demand, but an obstructed supply chain has made it difficult for companies to produce the goods necessary to meet it.
âWeâve been stimulating demand quite a bit with government assistance,â Pavlov said. The most basic law of economics is that when demand for a product exceeds supply, prices rise.
âPeople started buying all kinds of things because they certainly saw their income go up. So combined with a high increase in demand and an inability to produce, you get the very high inflation that weâre seeing today.â
Impacts to small business owners
Small businesses have been among the hardest hit when it comes to the clogged supply chains.
By June 2020, Blondin sold out of all of his bike inventory. Although business was booming, operations ground to a halt because he couldnât order enough product to meet demand.
Although Blondin now has bikes in stock, the premium mountain bikes are at least one year away.
Bike manufacturers need various componentsâchains, brake pads, and tiresâto complete their product. But those parts often need multiple components themselves to be manufactured. If any one of those individual parts are in short supply, it can mess up the whole system.
âThe longest lead item I have right now (a specific chain) is March 11, 2024,â Blondin said.
On top of the problems accessing products, the prices Blondin has to pay for them has also been rising. Since last year, annual price increases from vendors are turning into quarterly jumps.
âEvery three months we are getting a pricing update and we have to go through and reprice everything,â Blondin said.
For Blondin to stay in business, those price hikes are necessary. But it has priced some consumers out of the market.
âI have a lot of families that come in with a young teenager and theyâre like, âI wanna get a mountain bike!â And theyâre looking to spend $3,000, which is a good sum of money. I canât put them on anything for $3,000, I have to lean into the $4,000 bucket.â
Over the next year, he expects sales to be down 30% compared to the peak early in the pandemic.
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Why inflation challenges differ now
Blodin isnât the only small Fraser Valley business owner to struggle in the past three years. Between the rising costs of food, equipment, and gas, most businesses have had to adjust.
Lepp Farm Market has operated in Abbotsford for over 20 years. Manager Jason Lepp says his company has received cost increases for products across the board.
âPoultry, even what we pay, in the last number of months have gone up like north of 15%,â Lepp said. âDairy has gone up incredibly⌠Weâve just been getting hammered on packaging, like things are double.â
Like Blondinâs bike business, the increase in costs has forced Lepp to adjust his prices, and he has noticed a change in consumer demand.
âYou can see thereâs a little bit more of a hesitance to buy more of the high-end products. Weâve seen things change where people are looking for sale items,â Lepp said.
The challenges are different than usual, according to experts like SFUâs Pavlov.
Often, Pavlov said, inflation can help businessesâespecially small businesses.
If owners make a mistakeâsuch as producing something people donât really wantâthey can keep the price of that item consistent. Over time, as prices steadily rise, that item may become relatively cheaper compared to other goods and it will eventually sell.
âInflation helps erase those mistakes without forcing businesses into losses,â Pavlov said.
But if businesses arenât able to get any products in the first place, they canât sell items and benefit from inflation.
âThis time around, this mechanism doesnât really work. If you canât get products to your customers, it doesnât matter what the price of that product is.â
What to do now?
One temporary solution business organizations have asked for is assistance at the gas pump.
The Langley Chamber of Commerce has called for a 30 cent per litre tax break to help businesses cope with inflation. Other business groups have made similar pitches.
Cory Redekop, the CEO of the Langley Chamber of Commerce, said fuel is an expense that is shared for businesses across many sectors. Because of that, he says a tax break would be beneficial to many in the region, and simultaneously give consumers a relief at their shops.
âOne of the levers you have is fuel, which is embedded in the supply chain. It’s an obvious suck of revenue from consumers, and we think we can forgo some of the taxes,â Redekop said. âLet the consumers have a bit of a break over the coming months while we see what the ground holds for us.â
But that strategy hasnât always paid off.
In Alberta, the provincial gas tax was suspended in April. Although retail margins initially dipped, new research showed that profit margins eventually ended up matching the difference.
Economists also warn that such cuts can merely incentivize further spending, which can just boost inflation even higher.
Other business leaders in the Fraser Valley have emphasized the importance of customer service.
Nicole Reed, general manager of Community Futures South Fraser, and Leanna Kemp, executive director of the Chilliwack Chamber of Commerce, both said a businessâs ability to market itself is crucial to surviving inflation.
âItâs going to come down to customer service,â Kemp told The Current.
â[Customers] might forgo quality at this point, because if it comes down to paying your hydro bill and [then choosing between] buying a $200 sweater [or] a $40 one at Walmart, people are going to start to make those kinds of connections and make those changes.â
Kemp suggested that small businesses in the same area could work together to ensure they arenât selling the same products, specialize in a couple of different areas, and spread the wealth.
Blondin agrees. Going forward, he hopes small business owners across different sectors will work in tandem to better react to economic downturns.
âWe can have a collective conversation and share knowledge that weâre both seeing sales slowing,â Blondin said. âThen we can react better as a community as opposed to spending six months wondering where all the customers areârealizing nobodyâs had customers for six months.â
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