U.S. Small Business Retail Sales Slow Down: How High Costs Are Reshaping Consumption and the Service Industry

U.S. Small Business Retail Sales Slow: How High Costs Are Reshaping Consumption and Services

Fiserv’s latest U.S. small business retail sales data offers a window into consumer resilience and cost pressures. According to the firm’s May Small Business Index, overall sales were flat month over month and rose only modestly year over year; however, transaction volume continued to decline, and foot traffic has now fallen for the seventh straight month.

This means that sales not falling on the surface does not necessarily indicate a rebound in demand. More accurately, prices are propping up revenue, while underlying consumer activity remains weak. For retailers, restaurateurs, and service-oriented small businesses, this divergence is more concerning than a simple fluctuation in sales volume, because it shows household budgets are being reallocated by higher costs.

What happened

Fiserv said its seasonally adjusted Small Business Index held steady at 144 in May. Overall sales were flat month over month and up 0.7% year over year, mainly driven by a 3.1% increase in average ticket size; however, transaction volume fell 2.4% year over year, indicating that purchase frequency remains soft.

In retail, total sales rose only 0.1% year over year and fell 0.5% month over month; core retail sales fell 0.1% year over year and 0.5% month over month, with no growth in transaction volume. At the same time, average ticket size continued to rise, showing that price factors are still supporting nominal sales.

The most notable change came in services. Fiserv pointed out that service sales rose 1.0% year over year and average ticket size increased 4.2%, but transaction volume fell 3.2% year over year. This suggests that revenue growth for service businesses is also coming more from price than from stronger demand.

Fuel sales were the exception. Gas station sales jumped 22.9% year over year and rose 1.2% month over month. Fiserv believes higher fuel costs are one of the important factors pushing up average ticket sizes across several service industries, including professional services, transportation and warehousing, and administrative support services.

Why it matters

The significance of this data lies in the fact that U.S. consumption has not entered a broad-based recession, but it is moving into a more typical “high cost, low frequency” phase. Households are still spending, but more cautiously; businesses are still operating, but growth is relying more on price increases than on volume expansion.

For capital markets, this environment usually means two things: first, profit margins face pressure from both sides, as rising costs and weak demand coexist; second, the market will tend to favor companies with pricing power, service stickiness, or essential-product characteristics. By contrast, businesses dependent on discretionary spending, store traffic, and high-frequency transactions are more likely to feel the strain.

Industry trends reflected beneath the surface

1) Consumption is shifting from “volume” to “price”

The most important signal in Fiserv’s data is not sales growth, but the combination of “higher average ticket size and lower transaction volume.” This indicates that consumers are not noticeably increasing the number of purchases they make; instead, they are making fewer purchases in a higher-price environment.

For retail companies, this pattern is often unfavorable for long-term expansion. Price-driven growth is more easily affected by cost fluctuations and is harder to translate into sustained same-store sales improvement.### 2) Services Can Pass Through Costs Better Than Merchandise Retail

Service sales grew year over year, and the increase in average ticket size was higher than that of merchandise sales, indicating that the service sector currently has stronger price transmission ability. However, the decline in transaction volume also reminds the market that this “pass-through” is not without cost; demand is under pressure.

For small businesses, the advantages of services do not mean an easy ride. On the contrary, when labor, fuel, insurance, and financing costs are all elevated, service-sector growth looks more like a passive price increase than proactive expansion.

3) The Restaurant Industry Is Still Experiencing Demand Slowdown

Fiserv data show that small business restaurant sales fell 0.6% year over year. Although this improved from April, transaction volume declined 3.6% year over year, marking the sixth consecutive month of decline. Average ticket size rose 3.0% year over year, once again confirming the logic that “nominal growth comes from prices.”

Restaurants are usually a leading indicator of consumer sentiment. Continued declines in transaction volume mean households are still being cautious about eating out, especially for families with limited budgets, for whom dining expenses are easier to cut.

4) Both Essentials and Discretionary Spending Are Growing, But in Different Ways

Essentials sales grew 0.9% year over year, with average ticket size up 4.3%; the Discretionary category grew 0.6% year over year, with average ticket size up 2.6%. This shows that essentials still have stable demand, while discretionary spending has not collapsed noticeably either, but growth in both categories is being driven more by prices.

The implication for retail strategy is clear: in a high-cost environment, business models with essential-demand characteristics, subscription features, or repeat-purchase attributes will be more resilient than one-time purchase, low-frequency shopping, and purely discount-driven models.

What This Means for Businesses

For small U.S. businesses, the most immediate impact is that cash flow management becomes more important. Sales may appear stable on the surface, but declining transaction volume means fewer orders and weaker traffic, reducing the ability to spread fixed costs. If fuel, rent, and labor costs continue to rise, profit margins may come under pressure faster than revenue.

For retailers, the focus of competition in the next stage will not be “who can sell more,” but “who can more effectively retain limited foot traffic, improve conversion rates, and control subsidy costs.” This also explains why store digitization, inventory optimization, and pricing management tools remain key areas of sustained investor attention.

What This Means for Investors

From an investment perspective, the Fiserv report reinforces one conclusion: the consumer market has not deteriorated into a full-blown recession, but it is also far from having recovered to a level that can support broad-based expansion. The market is more likely to reward three types of companies:

• service companies that can quickly pass costs on to customers;
• essential consumer and high-repeat-purchase categories;
• technology platforms with efficient payment, transaction, and merchant management infrastructure.

Relatively speaking, companies that rely on store traffic, low-margin merchandise, and discretionary spending still face the problem of insufficient growth quality.Relative to this, companies that depend on store foot traffic, low-margin goods, and discretionary spending still face a problem of insufficient growth quality. For investment firms focused on the consumer sector, this means stock-picking logic needs to place greater emphasis on pricing power and cash generation ability, rather than simply looking at sales growth.

Possible Changes Ahead

If high oil prices and broader cost-of-living pressure persist, there are three most likely changes in the next stage:

1. Consumers will further cut non-essential spending, putting pressure on dining and leisure consumption; 2. Small businesses will continue to raise prices to sustain nominal revenue, but improvements in transaction volume will be limited; 3. The value of payment, POS systems, and merchant management platforms will rise, because businesses will need data and efficiency more than ever to offset costs.

From a longer-term perspective, this kind of data also points to a structural trend: the growth logic of U.S. retail and services is shifting from “foot traffic expansion” to “higher unit transaction value.” This will have a lasting impact on business models, store strategy, and digital investment.

Conclusion

What is most worth paying attention to in Fiserv’s May data is not that small-business sales are “still growing,” but that the quality of that growth has already changed. Stable nominal sales conceal the reality of declining transaction volumes and weak foot traffic; price, rather than quantity, is becoming the main source of support for U.S. small-business revenue.

For the business community, this means the high-cost environment has not ended, and companies need stronger pricing, efficiency, and customer retention capabilities. For investors, it also once again shows that in a period of consumer divergence, what is truly scarce is not sales growth itself, but business models that can maintain earnings resilience amid slowing demand.