With the holiday shopping season in full swing, people are being drawn to their town centres to buy gifts at local stores, benefit from discounts, and gather at Christmas markets. This Small Business Saturday, the spotlight is on retail SMEs (small and medium-sized enterprises).
SME retail on the ropes?
Over the past decade, small town centre retailers have had it tough. Shocks like the COVID-19 pandemic, supply chain disruptions, and inflation came on top of pressures from online and from out-of-town retailers. Early findings from an ongoing OECD study on the adaptation of retail SMEs to the twin transition, set to be published in Fall 2025, highlight the scale of these challenges in the European Union (EU). During the last ten years, retail SMEs’ share in total retail turnover and value added declined by an average of 11% across EU economies. Likewise, their relative contribution to retail employment dropped by more than 10%.
Town centres and local commercial districts struggle to provide a fertile ground for small and independent retailers as they once did. In Germany there have been over 60 000 net shop closures since 2015, and the market share of independent specialised retail has fallen from 31.6% in 2000 to 12.6% in 2023. This can be partly explained by reduced footfall in city centres. While foot traffic in some of Europe’s most popular high streets is reaching all-time highs, regional and national averages paint a different picture. For example, in Great Britain’s high streets, foot traffic remains around 15% below pre-pandemic levels.
Retaining a role for town centres
Despite these worrying trends, town centres continue to play an important role in people’s everyday lives. A survey from the Institute for Consumer Science & Analytics shows that 64% of the French population feels attached to their town centre and 72% visit at least once a week. At the same time local shops strengthen the social cohesion of a community, increase the quality of life, and serve as places where relationships are formed. To maintain this role as the heart and soul of their communities, town centres, local commercial districts, and the SMEs that locate there, will need to reinvent themselves. This is not only to address challenges related to shop closures and declining foot traffic, but also to navigate the complexity of global shifts, such as the green and digital transitions.
Hope in hybrid?
Amidst these challenges lie opportunities for reinvention. One such example is the rise of “hybrid” retail models, where physical and digital channels co-exist. Between 2012 and 2022, the adoption of digital sales channels has surged, with the share of retail businesses engaging in e-commerce more than doubling in the EU. Over the same period, there has also been a robust growth (+56% on average) in the number of retail SMEs participating in cross-border sales. This suggests that many small retailers are leveraging digital tools to reach a wider customer base, including those in international markets. In this context, the holiday shopping period provides an ideal moment for small retailers to showcase their digital presence and highlight their personalised services, loyalty programmes, and unique offerings that differentiate them from large companies. It is also an opportunity to draw attention to the importance of “shopping small” throughout the year, and particularly during this festive period.
Reimagining spaces
Policy makers are stepping in with targeted support for small businesses with strategies for sustainable transport and nature-based solutions. When done right, this can help achieve climate targets, bring visitors back and benefit local businesses. For example, as part of broader efforts of regenerating their high street, the London Borough of Sutton in the United Kingdom introduced the Green Enterprise Partnership to support local businesses in reducing their carbon footprint. Business Groups in North American cities are embracing the expansion of walking and cycling infrastructure as they realise that the benefits of providing more accessibility outweigh the drawbacks from reduced parking space. In Liverpool in the United Kingdom, planting street trees has benefitted local businesses, particularly through an increase in foot traffic. This resonates with the perception of local residents as 94% rate the appearance of their area nearly twice as highly post-greening and 68% feel encouraged to spend more time outdoors.
Successfully delivering such programmes and “greening” town centres requires engaging the community from an early stage, setting realistic expectations, and evaluating their impact. Community engagement creates awareness and builds a sense of collective ownership and trust which can counteract resistance from businesses and citizens. Location-specific research helps guide and build support for policies, and set realistic expectations among all stakeholders. Ultimately, continuous evaluation helps to measure the impact and gather learnings for future projects or to scale up efforts.
The path ahead
The crossroads at which town centres and local retail find themselves is not just a moment of reflection, but a call to action. In face of all the challenges these places and businesses had to endure over the past years, the green and digital transition offer promising avenues for reinvention. Local policy makers can improve the quality of their town centres by making these places more sustainable. By embracing hybrid retail models, small businesses can expand their reach while staying rooted in their communities. Ultimately, it is the residents and visitors who make the decision to go to the town centre, shop small and thereby invest in the local economy. Maintaining the historic role of town centres as the beating heart of their community and making small retailers fit for the future will therefore require joint action among people, places, and firms.
Lukas Kammerer is a Junior Policy Analyst at the OECD Centre for Entrepreneurship, SMEs, Regions, and Cities. Lukas works with the Local Employment, Skills and Social Innovation division with the Local Development Forum team. Prior to working at the OECD, Lukas worked as a Research Assistant for the International Institute for Housing and Urban Development Studies of Erasmus University Rotterdam. Lukas holds a Master's degree in Spatial Planning from Radboud University.