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Small Businesses Contract To Cope With Economic Downturn

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USA TODAY:

Millions of U.S. small businesses – especially in the retail, business-services and housing industries – could be vulnerable if a recession strikes on top of the housing slump and credit crunch.

A recession isn’t official yet. But look at Pearl Paradise, a thriving online jewelry business in Santa Monica, Calif. Jeremy Shepherd, the 34-year-old founder and owner of Pearl Paradise, says the economic slump hit his business last fall.

Shepherd, who speaks the Chinese Mandarin dialect, buys directly from pearl farmers in China and cuts out the middleman. That lets him sell high-quality pearls at lower prices to everyone from college students to investment bankers.

Revenue for his company, which sells pearls wholesale and retail worldwide, had been growing rapidly at 100% or so annually. But in October and November, the usual pre-holiday spike in sales didn’t happen. Customers who did buy were purchasing lower-priced pearls.

“It was starting to look bleak,” Shepherd says.

He quickly slashed prices 50% on his unsold inventory, and the pearls sold in days. But his projections of $25 million in sales for 2007 fell to $20 million, he says.

To keep his company stable, Shepherd is streamlining costs, combining the firm’s several different websites and beefing up his online marketing. He’s also delaying the possible launch of a showcase store in Los Angeles.

“We were lucky enough to see it coming early, and we made the right moves to offset any major losses,” Shepherd says. “We’re taking a pro-active approach. We’ll be able to hit it head-on and not have to close our doors or lay off people.”

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