Sometimes it’s tough to be right. In the last edition of this column we predicted that the new retail jobs created in late 2016 would likely not last based on early readings of fourth quarter store financials. Unfortunately, our predictions are coming true a little earlier than we thought.
Retail employment dropped by 26,000 jobs in February, according to data released Friday by the U.S. Bureau of Labor Statistics.
Although the economy added a higher-than-expected 235,000 jobs last month, evidence of the strong economic recovery, retail did not participate in the celebration.
Although the overall economy is recovering, retail has several things going against it, including the dramatic shift to online from brick-and-mortar, declining store foot traffic, the growth of off-price that is driving down prices and putting pressure on earnings, and the oversupply of retail space.
In short, the industry is undergoing a secular (industry-specific) disruption that is transforming the traditional business model.
The biggest drop in employment occurred at general merchandise stores, where a total of 19,000 jobs were shed. Departments store employment shrank by 5,000 jobs, while apparel specialty stores reduced their staffs by 6,000.
Several major mid-tier and specialty retailers have announced plans to lay off employees due to store closures this year. Macy’s will close 100 doors, 15 percent of its store fleet. Sears Holdings has already begun clearance sales at the 108 Kmart and 52 Sears doors it will be closing shortly. J.C. Penney announced it will reduce its store count by 140. Another almost 700 store closures have been announced so far this year by the likes of The Limited, Wet Seal, American Apparel, Foot Locker, Abercrombie & Fitch and others.
Given the share gains made by e-commerce during the just-ended holiday season, particularly in the apparel sector, we expect that there will be many more downsizings in 2017.
Since e-commerce is more technology driven, we don’t expect employment increases in the channel to offset the losses in the traditional sector. For example, Walmart is expected to lay off 1,000 people at its Bentonville, Arkansas headquarters, including some in the e-commerce division, in the wake of its Jet.com acquisition. Amazon has announced it will add 10,000 more people in its warehouses, but due to the highly automated functioning of its operations, each will process many more transactions than the typical retail store associate.
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