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Posted 05.19.08
Gas prices weigh on business Daily Record -- July 2006
Some area small businesses avoid passing costs to customers

By Vidya Padmanabhan

Originally published in the Daily Record, N.J., July 27, 2006.

Boonton florist David Potosnak watches gas prices closely. The price at the pump has an immediate effect on his bottom line, and of late, he has been feeling the heat.

When he opened his store, Blooms on Main, four years ago, a gallon of gas cost an average of $1.50, and he charged $5 for delivery within a five-mile radius. Gas prices have doubled, and so has his delivery price: He now charges $10 for delivery within five miles.

"I haven't felt it yet in the cost of flowers," Potosnak says. "But I expect it will happen soon."

Many Morris County small businesses feel Potosnak's pain. Several have been hit with fuel surcharges from their suppliers. They also are battling higher rents, utility bills and supply costs.

While some of them have passed the costs on to customers, others try to suck it up.

Bagelicious, a bagel shop in Rockaway, saw its flour prices go up last week.

"But I'm not gonna kill my customers," says owner Joe Pourmoussavi. "I take care of them."

The Floor Store in Madison, in contrast, has raised prices twice this year after five rate hikes from the carpeting mills last year, according to store manager Robin Weinacker. She attributes the increases partly to the fact that several of her products use petro-derivatives.

While the scenario might look bleak, but the innovation that marks small businesses will get many of them through it, experts say.

"The fuel surcharge will stay as long as gas prices stay at this level," says James Barrood, executive director of the Rothman Institute of Entrepreneurial Studies at Fairleigh Dickinson University in Madison. "But small businesses are getting smarter in terms of saving energy costs."

Fear of a higher sales tax
On the other hand, the successive blows of higher fuel costs, rising interest rates and this month's hike in the state sales tax may send some small businesses under, says Harry Menta of the New Jersey Small Business Administration at Newark.

"Small businesses are resilient," he says. "They are innovative enough, strong enough to get through this. But there comes a point when some small businesses will be unable to compete."

Small businesses nationwide have been expressing anxiety about this state of affairs. Optimism among small business owners fell in June to its lowest level in more than three years. The percentage of companies planning to add workers dropped to 9 percent from 14 percent in May, while the percentage planning capital spending in the next few months fell to 27 percent from 28 percent.

The national job growth rate has been waning, though the unemployment rate is at a five-year low of 4.6 percent.

The New Jersey jobless rate is slightly higher at 5 percent. The mood of the New Jersey small business community reflects this downturn. The Office of New Jersey Small Business Administration gave out 2,525 loans from October 2005 to June 2006, for a total of $440.6 million. This is down from the $508 million given out in 2,572 loans during the same period a year earlier.

Morris County businesses have had their own special problems to deal with. Denville retailers, for instance, have to deal with parking problems, which drive customers away. And Morristown retailers have grappled with the closure of Epstein's departmental store, a main draw to the central business district.

Struggling against chains
The Movie Store in Florham Park is like any other independent video rental store these days: struggling to beat chain stores, online rental stores like Netflix and video on demand on cable.

"Three independent video stores in our neighborhood closed last year," says Movie Store manager Peter Cooper. "While that was a brief shot in the arm for us, we are in no great shape right now."

The store recently added on an ice-cream parlor to attract more business. It is considering a move to a smaller space to save on rent and energy costs.

A few businesses have remained buoyant in spite of the tales of woe around them. People seem willing to spend on certain services no matter what the cost.

"Ninety-eight percent of my visitors color their hair," says Steven Bollo of Bollo Salon in Towaco. "This has sent business through the roof."

Lori Dunn's bridal store, Model Bride, is doing so well that she is considering adding to her branches in Chatham and Manhattan with one in Philadephia. She is also considering a warehouse for her Internet business.

Laura's Pet Spa and Grooming in the Whippany section of Hanover has seen no difference in consumer spending. Taylor's Consignors at Morris Plains is seeing more business, according to owner Robin Taylor.

Some small businesses are tightening their belts to cope with the tough times. Few are hiring more help. Mina Ismail, owner of Bindiya Beauty Salon and the Sur-Plaza video rental and clothing store in Parsippany, had to cut down from 10 employees to almost half the number.

She also picks up her supplies herself, to avoid fuel surcharges on deliveries.

"People are not spending like before," she says. "I'm nervous about the future."

Others stoically wait out the trough in the cycle.

"Profits are getting smaller," says Nick Hong of Florham Park Cleaners. "But we're holding on. And we keep doing quality work."