Retail employment has fallen sharply this year due primarily to the rise of online shopping. Department stores, with their large staffs and overheads, have been the hardest hit. Layoffs may now be spreading to other retailers, including warehouse clubs and superstores.
“Retail employment has been a solid anchor for the U.S. jobs market … [but] year-to-date, that picture has changed dramatically,” wrote Robin Brooks, chief economist for the Institute of International Finance, in a June report.
The sector generated an average 200,000 jobs each year between 2014 and 2016. In 2017, however, data from January to May indicates an annualized loss of nearly 110,000 jobs. That’s a swing of 300,000 jobs from the growth years.
The retail industry employs nearly 11 percent of the total U.S. labor force, meaning that the impact of these job cuts may even outstrip the impact of manufacturing job losses, according to experts.
Major department stores including J.C. Penney, Sears, and Macy’s have announced layoffs of thousands of staff, and hundreds of store closures, in recent months. Job cuts and closures will likely rise as traditional retailers continue to struggle with poor sales and profits and, in some cases, bankruptcy.
Superstores May Be Next
Department stores have a higher labor intensity than other retailers, which may be contributing to the recent deterioration in retail employment, according to Brooks. It takes 8.4 employees at a department store to generate $1 million in sales per annum, while the figure is 3.1 at a superstore and 0.7 for an online retailer.
The deterioration may now be spreading to superstore jobs as well. “We think the severity of the recent swing in part reflects a catch-up, with the shift to online shopping broadening out from department stores—where it has been felt for some time—to now also warehouse clubs, superstores, and other big box retailers,” wrote Brooks.
In addition to the threat coming from online retail, wage pressure is also spelling trouble for traditional retailers.
The sector is expected to see stronger demands for higher wages as concerns about income disparity gain political traction, according to a report by Cornerstone Capital Group, an investment adviser. These headwinds are pushing retailers to alter their business models.
Traditional retailers that can offer an exceptional digital experience will be able to thrive in the long term. They are now increasingly investing in technology to automate part of the sales process and establish their online platforms.
But these changes come at a price, as automation technology has the potential to accelerate job losses, according to Cornerstone.