Small businesses suffer more than most when rising gas prices hit their bottom lines harder, they are not able to pass on additional costs to customers. Higher fuel prices mean more money is lost in delivery, commuting and energy expenses. Some companies, however, are profiting from the situation, including bike shops, Internet phone service providers and an L.A. motorcycle rental business. For more on this continue reading the following article from The Street.
Gas prices across the U.S. are hurting everyone — except the few businesses that have figured out ways to make the pain go away.
There aren’t many of them. Cynthia Magnuson, spokeswoman for the National Federation of Independent Business, says that in general energy costs are having a negative impact across the board on members.
"Even those that might run businesses that try to minimize use of gasoline are really not immune to the rising prices," she says. "A bike shop owner needs his or her products delivered via a gas-guzzling vehicle."
The issue is so concerning that the National Federation of Independent Business sent a letter to Capitol Hill last week showing support for a House bill that would restore domestic oil drilling, calling drilling offshore a critical step toward increasing domestic production and reducing prices at the pump — and giving small-business owners relief from skyrocketing energy costs.
In the association’s most recent Small Business Problems and Priorities survey, members ranked the cost of natural gas, propane, gasoline, diesel and fuel oil as their second greatest concern. Approximately 42% of NFIB members surveyed ranked the problem as "critical," the letter said.
"Increasing fuel prices have hit small businesses particularly hard, because unlike their larger competitors, they often absorb these cost increases instead of passing them on to their customers," according to the NFIB letter.
That said, TheStreet found five small companies where sales are up as a result of high gas prices:
1. Junction Networks in Newton, Pa.
Rising gas prices has caused more than a few employees to work from home at least part of the week to cut down on commuting expenses. That’s where Junction Networks comes in.
The Newton, Pa.-based company provides Voice over Internet Protocol platforms to small and medium-sized businesses. One of the more well-known names in the VoIP space is Vonage(VG), which provides telephony services primarily to residential customers, but also to small businesses.
"We’re looking to have 100% growth in just the next seven months, and everything that we’ve seen says that that is attainable," says Mike Oeth, CEO of Junction Networks. "The economy could be better, but I think that’s actually driving [small businesses] to at least consider VoIP."
Junction Networks’ primary product is onSIP, a subscription-based service that can host a small business’ entire communications platform. Employees can make outbound calls through their desk phone, home phone or mobile phone and the outgoing number will be the same business number. Incoming calls get routed to one number, but to a phone the owner selects.
The system "brings all these sophisticated phone features and makes them available to small and medium-sized businesses, allows them to look larger and be just as effective if they’re in one office or spread out all over the place," Oeth says.
Implementing a VoIP communications system allows small businesses to be more flexible in who they hire, Oeth says.
"We’ve just seen a big increase in people looking to work from home," Oeth says. "Gas prices are definitely a part of it, prices in childcare and day care, after-school care — those prices have gone up."
The company’s revenue has doubled on both a year-to-date and month-over-month basis compared with last year, he notes. "We’re shooting to double the number of active phones by the end of this year" to 20,000 from about 11,000 currently," Oeth says.
"The only thing the small business needs is a phone and an Internet connection. It can sit on a desk, be an app on an iPhone or some software on their laptop," Oeth says. "There is no maintenance. There is no extra IT required. It also allows them to work from home just as easily and just as efficiently as if they were in the office."
2. EagleRider Motorcycle Rental in Los Angeles
Business is booming for motorcycle rental and touring company EagleRider, according to its president, Chris McIntyre.
The company specializes in renting out Harley-Davidson(HOG), Honda(HMC) and BMW motorcycles, among others.
EagleRider has gone from renting out just four bikes in the early 1990s to 4,000 bike offerings in 110 locations across the U.S. and 14 corporate locations in Europe. (The company also has international affiliates.)
"What’s happening in the rest of the world is happening in America. Gas is exploding in price," he says. "But our biggest growth and revenues are U.S.-based."
"We have tons of people coming that not only rent our bikes, but then ask to buy them because it’s a great economical way to commute. [Consumers] still want to be in something cool, but they love the idea of getting 50 miles to the gallon and not being in a Toyota(TM) Prius," he says.
McIntyre says that just two months into the motorcycle-rental season, the company’s revenue is up 18% for the year. He expects the company’s revenue to rise at least 20% this year and to see at least double-digit growth in profit.
EagleRider is not in the motorcycle sales business, but has started to sell its bikes back to dealers, which are in turn seeing a rise in demand for used-bike purchases. While rentals account for 90% of EagleRider revenue, sell-backs are helping as well.
"We’re in the very industry that was decimated [in 2008] by the economy," he says.
3. River City Bicycles in Portland, Ore.
Whereas EagleRider has seen strong growth with the spike in gas prices this year, River City Bicycles founder David Guettler saw it when gas prices spiked in 2008.
Given the bike-friendly laws in Portland, many commuters have embraced the idea of alternative transportation — but those who didn’t were convinced to try. "The people of Portland figured it out during the 2008 spike and never slipped back," Guettler says.
What is gaining ground is River City’s new outlet store, where Guettler attributes in increase in sales to consumers’ lower disposable income — with one factor being higher gas prices.
The outlet is "doing very, very well," he says.
4. Swap.com in Boston
Swap.com was formed only last year, part of a growing industry offering used items to consumers looking to save money.
Swap.com doesn’t actually sell stuff; it provides a community where users can exchange books, CDs, video games and movies with other users for free. Users list the items they "have" and pick the items they "want." The company completes the swap-matching for them.
The site also sponsors Swap Events and added a Swap4Schools section, in which teachers and librarians can exchange textbooks.
In just one year, the site has grown to more than 1 million users, CEO Jeff Bennett says.
"High gas prices are affecting consumers in a lot of ways," Bennett says. "Everybody has a budget. As they look at gas prices going up, it has an impact. [Consumers] can’t spend money on other things. They’ve got to find more and more ways to make it all work."
The site makes money on shipping costs, a partnership with Amazon(AMZN) and if a swap is unable to be completed and the user decides to buy the book. The main form of revenue is through advertising sales.
"More people are signing up. More swaps are happening. More items are being [listed]. Every one of these metrics is growing," he says. "We are helping a lot of people save money."
Business is expected to double this year over last year, Bennett says.
5. i9 Sports in Brandon, Fla.
Brian Sanders, president of i9 Sports, says somewhere along the way youth sports became more about competition and winning rather than having fun.
"Every study will say the No. 1 reason kids play sports is to have fun. Forty-two million American kids play sports, but half quit by the age of 12," either because they had a negative experience or it is no longer fun, Sanders says.
The sports program caters to kids 3-14 and offers a variety of sports including flag football, basketball and cheerleading. Sanders says there are no tryouts or drafts. Kids are allowed to rotate through positions.
The program is modeled so it is convenient and cost-efficient for households where there is likely to be dual-income earners, he notes. Practices and games are on the same day.
"Moms and dads are time stretched, and so they are looking for programs where they don’t have to take their kids to three to four practices a week and games every weekend," Sanders says. "It ties in particularly in light of the way gas prices are going up. We hear all the time that parents love the once-a-week commitment and don’t have to drive all over going to games."
The company started offering franchise deals in 2003; with 130 franchisees (who could have multiple sports programs within their given territory), the company has "exploded," Sanders says.
i9 Sports makes money on registration fees. Sanders said revenue growth is up 20% compared with last year for locations that have been open at least a year.
"It’s a tough time right now, and so for us to be able to provide an experience that’s fun for kids, low-stress, convenient and affordable, it just really fits very well in today’s economy," he says.
This article was republished with permission from The Street.