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For the past three years, I have put together a series of annual predictions covering the work of Main Streets and our anticipated impacts on the small businesses that make up the fabric of our downtowns and neighborhood commercial districts. Making predictions is always a risky proposition, but with great humility, I hope this can be valuable for thinking ahead and planning around the likely issues, topics, and shifts in the coming year. I will also take some time to examine my predictions from last year, which you can read here.

Looking back, this past year in many ways represented a slowing pace of change and settling into new norms. This could be called a cautionary time, in which all the talk around recessions and inflation made for decreasing consumer confidence environment and shifting spending priorities. Here are the miss, win, and push predictions from 2023.

A Miss: Bricks and Mortar Growth Continues to Outpace E-Commerce Growth

While the exuberance for a return to in person shopping in 2022 didn’t go away, it certainly settled into a more normal growth pattern, much like the 2020 e-commerce growth came back down to earth in 2021. However, much of this shift in 2023 was driven by changes in consumer spending moving emphasis from retail to services, including personal services, leisure, and—of course—fixing all the things that were bought during the pandemic. If you traveled last year, you likely noticed this shift firsthand. To demonstrate how dramatic this spending shift was, according to the OAG Company, the number of flights was up by 137 percent from 31,661 flights in 2022 to 75,161 in 2023! And while overall revenue for retail was up for the year, November 2023 data continued to highlight many of the shifts throughout the year, as much of the growth was from online shopping, restaurants, and bars.

graph of beauty and fitness sales

Some key 2023 retail sales highlights:

  • Compared to the same period in 2022, revenue among American brick-and-mortar stores was down 3.20 percent in 2023.
  • In-store sales represented 85.1 percent of total retail sales in the first half of 2023; this is down 1.61 percent compared to the same period in 2022 (86.5%).

Small businesses need to continue to diversify revenue streams with e-commerce and by adding a service element.

A Win: What Was up in Sales During the Pandemic Now Shifts to Services

While I missed the mark on bricks and mortar retail sales, I was spot on with the shift to more services. Much of this shift was found in leisure travel, restaurants, and bars…despite the prevalence of inflationary pressures in both!

First, restaurant spending and openings grew: Diners spent more on restaurants this year, and many restaurants opened to meet the increased demand. Diners spent about 7 percent more on restaurants this year, with an average check total of $22.46. The number of restaurants that opened across the US totaled 10,608, about 6 percent more than in 2022. (Source: BentoBox’s 2023 Restaurant Trend Report)

Hotelier Marriott said global room demand from leisure travelers in the first quarter of 2023 was 10 percent above 2019 levels. And Southwest Airlines said its quarterly operating revenue by the end of June was above pre-pandemic levels. Placer.ai data also showed personal care services like beauty and fitness spending far outpacing overall retail spending through the first half of 2023.

Many retailers have reacted to this trend line by focusing on new service offerings. We are moving to a place  in which businesses are offering retail goods, services, and data monetization as part of their overall strategy (Source: Beyond Retail).

Main Street Skowhegan receives a grant from USDA

A Push: Entrepreneurial Ecosystem Place “Hotbeds” Shift to Small- and Mid-sized Cities

While places like Skowhegan, Maine, and Emporia, Kansas, aren’t yet competing with Silicon Valley and the Research Triangle, there were a lot of waves generated in the entrepreneurial ecosystem space as a growing segment of the broader community and economic development field. In 2023, Skowhegan grew their new entrepreneurial center, received support funding from the Maine Technology Institute, and most recently, received U.S. Economic Development Administration Recompete program funding to the tune of $425,000. The initial success of Maine Downtown Center’s pilot entrepreneurial ecosystem work that resulted in a Senate direct appropriation through U.S. Small Business Administration to expand this work to 10 other Main Street Programs.

Great strides were made, but we’ll consider it a win when national media and conferences begin to call out and feature Main Street communities as models for small and mid-sized community small business support systems.

Predictions for 2024

Prediction 1: we will move from bricks and clicks to experiences and transactional spending dialogue

Distinctions between brick and mortar and online sales have become far blurrier as physical stores continue to seek growth in online transactions as part of their revenues, and purely online stores seek out real estate plays.

By separating these sales categories, we are creating a competition that doesn’t need to exist. Salesforce predicted that bricks-and-clicks businesses will outpace brick and mortar or e-commerce only businesses by 1.5 times.

Winning Main Street small businesses will be those that craft a business model that creates in-store experiences where consumers want to engage with the purchase, share social time, create a memory, etc. At the same time, small businesses should move products and services that are purely transactional— delivery, in-store pick-up, etc—to more online formats in which consumers prefer convenience.

Prediction 2: decreasing average retail square footage turns every existing business into a potential incubator
Graph of annual retail sales per square foot

The bricks-and-clicks evolution has resulted in an ever-decreasing average square footage in U.S. retail. Given that most of our Main Street businesses are in fixed size buildings that are difficult to break into smaller storefronts, retailers will need to find ways to creatively generate increased traffic and fully utilize their spaces.

One solution is adding additional services as part of the retail revenue model or vice versa, adding products to the service business. Research from Square and Wakefield found that 59 percent of consumers are likely to buy an item from a restaurant or retail store that isn’t a part of its main offering. Mixing retail and services provides additional reasons for consumers to come into their stores, a more diverse mix of customers, and differentiation from pure e-commerce businesses.

Rather than trying to populate via a standalone pop-up location, Main Streets and other place-based programs can leverage existing small businesses as event spaces and pop-up locations for new businesses seeking market exposure. This format creates a number of win-win scenarios with consumers benefiting from new shopping opportunities and a great density of activity and engagement.

Prediction 3: the generational marketing shift becomes much more complex

In my work, I have seen a significant gap between how younger generations access information and the marketing and communication tools utilized by Main Street businesses. To engage this younger demographic, businesses need to continue to shift social media usage from platforms like Facebook to places like TikTok and communication engagements from email and e-news to SMS.

Data is showing that younger generations are spending a greater portion of their resources on experiences. A June 2023 report from Experian revealed that 63 percent of Gen Z and 59 percent of millennials would rather spend money on “life experiences” like travel and concerts that they can enjoy right now, rather than save up for retirement.

Social media platforms by number of users

Each generation's spending habits vary significantly. Unfortunately, that means marketing to each and considering product inventory and experience can be complex. For example, looking at retail marketing, many small businesses have become accustomed to posting pictures on Facebook and Instagram. However, there is great segmentation emerging in social media marketing. TikTok’s top demographic (21 percent) is 18-24 year-olds, and that age group makes up 34 percent of Snapchat users. Facebook skews older, with 29.9 percent of their market made up of the 25-34 age group (Source: Sprout). As such, retail advertising will transition to higher levels of personalized content and on distinct channels, referred now to as direct-to-consumer (D2C).

For the past several decades, direct-to-consumer marketing has been focused on social media, email, traditional advertising, and leveraging influencers. But as consumers become overwhelmed with messages, SMS is rising to the top. According to Gartner, SMS boasts an open rate as high as 98 percent and a response rate as high as 45 percent. This makes SMS for retail one of the highest-performing marketing strategies. Benefits of SMS for retail include improved customer engagement, increased customer acquisition, and soaring sales rates.

Keep an eye on WhatsApp as well. WhatsApp's popularity in the US has steadily grown over recent years. In 2019, approximately 68.1 million US mobile phone users accessed WhatsApp. The figure has since grown and was projected to reach around 85.8 million users in 2023. WhatsApp's largest demographic is 18 to 34 years old. And WhatsApp is the dominate player in Latin American and Asian business. This fact further aligns with US population and small business growth whereby Latino and Asian American are the fastest growing racial and ethnic demographic segments.

Prediction 4: can you have a prediction blog and not include something on AI?

Throughout 2023, we saw artificial intelligence (AI) create headlines for its potential for wonderful economic innovation and productivity. Global and large national retailers began to focus and incorporate it to improve everything from their marketing to supply chains.

For the small business owners, 2024 becomes the year when more Main Street small businesses use AI in two primary ways.

  • As a personal assistant, helping to quickly draft social media content and strategies for the business.
  • To help with inventory planning and curating more personalized products for key customers that opt in.

As with any new technology there will be early adopters among Main Street businesses, with thousands more to follow.

Check out a discussion on the benefits of AI in our Grow with Google Tools webinar >

Prediction 5: growing intersectionality between Main Street ecosystems and high propensity business ecosystems

It was only seven years ago that I attended my first E-Ship Summit hosted by the Kauffman Foundation. It was truly inspiring, but I remember wondering, “where is the discussion around the importance of PLACE in ecosystem building?” Fast forward, there has been much progress in this area—much of it through the great work of local Main Street ecosystem builders. Taking this idea one step further, I’m predicting in 2024 that we will see more attempts to create greater synergies between our efforts at using place both as a focal point of hyperlocal small business ecosystems, but also the tangible real estate and programming that takes place in our downtowns and neighborhood commercial districts and the more high-tech/manufacturing sector ecosystems focused on unique forms of capital infrastructure, talent agglomeration, and sector infrastructure.

City Center Market in Florence, SC

This intersectionality has two primary macro drivers.

Economic development has become highly dependent on human capital. Given mobility within high-propensity ecosystems, human capital is seeking quality of place as they have more choices where to live and work.

In an "age of dispersion," in which nearly anything can be done online, people are demonstrating a natural yearning for community engagement and human interaction.

Logical intersections of these two focused ecosystems will center on:

  • Housing – Affordability and Availability
  • Third Spaces and Places for “Accidental Collisions”
  • Broadband Infrastructure
  • Professional Services
  • Incubators/Accelerators/Shared Kitchen Facilities/CoWork, etc.
  • Culture and Entertainment Venues
Prediction 6: as loneliness and isolation rise, third space move to in-store micro communities

While the “age of sispersion” has created wonderful opportunities to work (remote work), shop (e-commerce), educate oneself (online learning), and even receive medical advice (telemedicine), it has also resulted in the demise of real community and connection.

For decades, Americans reported spending about six and a half hours a week with friends. But from 2014 to 2019, it suddenly dropped by 37 percent, to four hours a week. There are growing concerns around the impacts of loneliness and isolation on mental and physical health. One in five Americans reported feeling lonely or socially isolated often or all the time in 2018. One study found the rate of loneliness among young adults rose almost every year between 1976 and 2019. In a 2019 YouGov poll, 22 percent of millennials reported having no friends at all.

Cat cafe

Third spaces are important gathering places where people can create and build community in both public and private spaces–and they can often be found in our downtowns and neighborhood commercial districts. Historically, we found third spaces in coffee houses, breweries, libraries, and even salons/barbershops. In 2023, I have noticed retailers and service providers picking up on the need for third spaces to expand their businesses. For example, walk into Blanco Creek Boutique, a women’s clothing store in Tucumcari, New Mexico, and you’ll find a large sitting area where you can sip on Jackalope Coffee. According to the owner, the coffee shop and clothing store used to be separated, but she saw the opportunity to provide a value-added experience for her customers through community building.

In 2024, I anticipate that this strategy will continue, as well as more hosted instore events designed to foster spaces where customers can connect, share, and engage with the brand and one another. This sense of community is not only enriching the shopping experience but also driving brand loyalty, turning customers into brand advocates.

I’m a big believer that innovation occurs at the crossroads of people’s different backgrounds and experiences. While these are just some of my thoughts based on visiting with many of you, your businesses, and your communities throughout the year, I encourage you to reach out to us at info@mainstreet.org and share your own observations as well. We will continue to monitor these trends and predictions and incorporate our findings and your experiences into evolving and adaptable planning tools for your Main Street program's continued resiliency.

If you’re interested in learning more about small business trends and Main Street impacts, listen to the upcoming Season 2 of the Main Street Business Insights podcast. The first episode will air on January 31 wherever you listen to your podcasts.

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Community Heart & Soul, a Main Street America Allied Member, is this quarter's Main Spotlight advertiser. For more information about the products and services they provide to Main Street organizations, click here >

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