Summary: The new industrial revolution will have its greatest effect on industries that have large imbalances. Like retail, after decades of overbuilding stores. Lots of jobs will be destroyed. Watch closely, other industries will be hit with similar shocks.
Hayley Petersen at Business Insider points to the next wave of the industrial revolution: “The retail apocalypse has officially descended on America” —
“Thousands of mall-based stores are shutting down in what’s fast becoming one of the biggest waves of retail closures in decades. More than 3,500 stores are expected to close in the next couple of months. Department stores like JCPenney, Macy’s, Sears, and Kmart are among the companies shutting down stores, along with middle-of-the-mall chains like Crocs, BCBG, Abercrombie & Fitch, and Guess.
“Some retailers are exiting the brick-and-mortar business altogether and trying to shift to an all-online model. For example, Bebe is closing all its stores — about 170 — to focus on increasing its online sales, according to a Bloomberg report. The Limited also recently shut down all 250 of its stores, but it still sells merchandise online. …Sears is shutting down about 10% of its Sears and Kmart locations, or 150 stores, and JCPenney is shutting down about 14% of its locations, or 138 stores. …
“The real-estate research firm Green Street Advisors estimates that about 30% of all malls fall under those classifications. That means that nearly a third of shopping malls are at risk of dying off as a result of store closures. According to many analysts, the retail apocalypse has been a long time coming in the US, where stores per capita far outnumber that of any other country.”
Petersen understates the situation for retail stories, overlooking the inevitable bankruptcies (Sears might be the next to go). As a modern business reporter, she mentions the effects on businesses but not the large-scale firings when those stores close. How many might lose their jobs?
The growing gap between retail sales and retail jobs (Jan 1992 = 100).
This is the story of the modern US economy.
For over two decades retail sales have been growing much faster than retail jobs, although jobs have grown faster than wages. These trends are accelerating. Here are the total changes for the retail sector from January 1992 (the earliest data) through March 2016.
- Sales: up 284% ($5.0 trillion, 26% of GDP).
- Jobs: up 24% (15.9 million, 11% of all non-farm jobs – peaked at 12.2% in Aug 1988).
- Real wages: up 8% (avg. real hourly wages of production & non-supervisory workers).
The obvious causes are more efficient methods and new technology. The two are mutually re-enforcing, and still in the early stages. McDonald’s is automating order-taking, cutting costs and increasing customer satisfaction. Bossa Nova’s retail robots stock store’s shelves. And more innovations are made, large and small, every month.
But the real driver of change is the flow of sales away from stores. The stores of the future are online and catalogs. E-commerce sales have risen from almost nothing in 1999 to 8% of total retail sales (ex-food) at the end of 2016 (+14% YoY in Q4 2016).
Even nonstore retail sales (mostly catalogs) have risen from 5% of total retail sales (ex-food) in 1999 to 12% at the end of 2016. Their sales are up 266% since 1999 (up 14% YoY in Q4 2016) while their workers are up only 12% (from 483 thousand to 552 thousand).
E-commerce and nonstore retailers have been slowly destroying much of the legacy retail industry. Now this process enters a new stage, as the pace of store closings accelerates — and a wave of large bankruptcies looms ahead, the price they pay for the billions in shareholder wealth created.
Real wage growth has slowed to a crawl for most people. No surprise that profits have risen to near their historic highs while overall GDP grows only slowly — roughly 2%/year since bounce after the crash. There is too little consumption to drive growth. The 1% invest much of their income, and the 0.1% invest most of it — spending that much would be a 24-7 job (see the IRS data).
These effects combine with the other deep structural changes running today. For example, we’re producing fewer of the superstar young firms that generate jobs. As a result of this and a hundred other similar trends, growth has been slowing for decades, and is predicted to continue slowing.
Making these changes worse will be the job destroying effects of the new industrial revolution — as we see in the retail industry.
These trends will destabilize our society. We have the time and ability to successfully manage them, but appear unlikely to do so until after the wave hits. It’s a tragedy for us and our children, avoidable only if we mobilize and act soon.
For More Information
For an introduction to the problem see “Will Humans Go the Way of Horses? Labor in the Second Machine Age” by Erik Brynjolfsson and Andrew McAfee in Foreign Affairs, July 2015.
- 50 years of warnings about the next industrial revolution. Are we ready?
- The robots are coming, bringing hope of a better future.
- Do we face secular stagnation or a new industrial revolution?
- Our future will be Jupiter Ascending, unless we make it Star Trek.
- 50 years of warnings about the new industrial revolution. It’s here. Ignore the naysayers.
- The coming Great Extinction – of jobs.
See these books to learn about the new industrial revolution now in progress.
- The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee (2014).
- Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford (2015).
- The Future of the Professions: How Technology Will Transform the Work of Human Experts by Richard and Daniel Susskind (2016).