The new industrial revolution hits retail: prepare for mass firings.

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.

Retail Sales and Retail Employment

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.

Robot waitress

Conclusions

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.

If you liked this post, like us on Facebook and follow us on Twitter. See other posts about the new industrial revolution, about inequality and social mobility, and especially these…

  1. 50 years of warnings about the next industrial revolution. Are we ready?
  2. The robots are coming, bringing hope of a better future.
  3. Do we face secular stagnation or a new industrial revolution?
  4. Our future will be Jupiter Ascending, unless we make it Star Trek.
  5. 50 years of warnings about the new industrial revolution. It’s here. Ignore the naysayers.
  6. The coming Great Extinction – of jobs.

See these books to learn about the new industrial revolution now in progress.

Rise of the Robots
Available at Amazon.
The Future of the Professions
Available at Amazon.

 

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21 thoughts on “The new industrial revolution hits retail: prepare for mass firings.

  1. Four comments:
    1. Retail has been squeezing down the number of employees since the early 1990’s. For example, Aldis grocery store chain tries to have no more than 2 employees in the store at any given moment. While you are correct about the the impact on employment, it is going to take a while for the downtrodden retail workforce to notice that they are losing jobs even faster than before.

    The reason we are seeing a lot of these articles at this time is that the metrics people use to analyze retail company performance are finally being hit by trends that started 20 years ago.

    2. It isn’t just the big retails malls. I’ve noticed that the number of empty store fronts in downtown retail and strip malls in a wide range of communities across multiple states has gone up significantly in the last four years.

    3. I still maintain that the real jobs Armageddon is going to be in the transportation industry. Online retail has been expanding the transportation industry job count for quite a few years now and driverless vehicles and increased automation will knock out one of the few remaining industries where people without extra education can make a good living.

    4. The number of small businesses being created in general has been down since 2008 and a lot of the reason people start small businesses these days is to sell them to big businesses. This trend worries me a lot. Small businesses are a lot more like democracies than bigger businesses and this is one more way that middle America is losing its grip on controlling its destiny.

    Like

    1. Pluto,

      “Retail has been squeezing down the number of employees since the early 1990’s.”

      Retail employment has been rising since WWII. It hit 15.4 million in Feb 2000, fell in the crash, slowly rose to a slightly higher peak of 15.6 in Nov 2007 — and has slowly risen to 15.9 in Feb 2017. The coming store closings suggest that is close to a historic peak.

      “While you are correct about the the impact on employment, it is going to take a while for the downtrodden retail workforce to notice that they are losing jobs even faster than before.”

      I agree. Trends like these shift to hyperdrive in recessions. Everybody will notice the firings, and that there is no recovery in retail jobs afterwards.

      “It isn’t just the big retails malls. I’ve noticed that the number of empty store fronts in downtown retail …”

      I agree. It’s not my field, but I suspect that large malls have been the strongest part of retail for decades — taking business away from most downtowns areas.

      “I still maintain that the real jobs Armageddon is going to be in the transportation industry.”

      I’ll state that even more strongly. I suspect that over the next decade or two there will be intense competition for the worst hit industry. I doubt we can foresee at this point. My guess is that long-haul trucking will be hit first — driving on major highways. Replacing urban drivers will come more slowly. People tend to overestimate the speed and magnitude of short-term change but underestimate the speed of long-term change.

      “The number of small businesses being created in general has been down since 2008”

      Yes. Even more importantly, we’re producing fewer of the superstar firms that create most of our new jobs (see this post).

      “Small businesses are a lot more like democracies”

      That’s an important insight. Jefferson believed the bastion of the Republic were Americans small farmers, craftsman, and small business owners — and that a nation of employees was unlikely to remain a democracy. The late 19th C Gilded Age destroyed the small farmer and craftsman classes. Now the last leg is getting crushed by business consolidation.

      The Roman Republic underwent a similar process in the second century BC, as the latifundium replaced the small farms that were the foundation of the Republic. When appointed consol in 107 bc, Marius organized the now landless peasant citizens into the standing army of professional legions (Marian reforms) — which over the next century helped destabilize the Republic.

      Like

  2. FM- Spot on. The turning point occurred last year when Walmart teamed up with BOA and Revolution Systems to automate cash management supply chain. This change is not relegated to stores and the cashiers. It effects the corporate office allowing for 1 person to do the job of 15.

    Walmart is cutting 7,000 jobs due to automation, and it’s not alone.”

    For future trends on who will likely survive and thrive with employees, see the Apple Store, Costco, and Chik-Fillet models.

    Like

    1. Mike,

      Thanks for that powerful example.

      This post discusses only the first order effects — people losing jobs as store close. But this will disrupt an entire business ecosystem. Those stores are physical structures built and maintained by people, supported by a host of business vendors selling those stores goods and services, run by employees who have other workers hiring and supporting them. The job losses will ripple out, so that the end result might be far larger than the initial losses from the store closings.

      Like

  3. It would be interesting to get an historical perspective on the other side of the job losses caused by technological advances, i.e., the job gains from the new, unanticipated markets that spring up in response. Think of all the jobs that were lost due to the cotton gin, the steam-powered shovel, the inter-modal shipping container, etc. These all caused a great many losses, yet other jobs were created in response and, as a society, we have an overall improvement in our well-being since those days. Does anyone have recommendations for getting a better understanding of net jobs created by technological disruption of the “status quo?”

    Like

    1. Andrew,

      That was economists initial reaction to the new industrial revolution: there was initial disruption, but new jobs were created. With religious-zealot certainty they insisted that this time would be like the past — as if Zeno was right, and change was impossible.

      In the past two years they have slowly began to see that this revolution is different, with the potential for far larger job losses and fewer new jobs. See the many articles about this listed on this reference page. Esp sections 2 and 3.

      Like

  4. Dear Editor, re your response to Andrew Burnette :-
    I think you are probably right. The collapse of jobs for the “underskilled” is now reaching serious proportions.
    What cure do you suggest?
    As far as I can see, unless a serious attempt is made to deal with this crisis, and to re- integrate the marginalised in to US society, the outcome will be catastrophic– civil unrest on a scale that the US has never seen- and perhaps overt civil war.
    If there were a market where I could lay some wagers, I would guess that the civil war option would be the one most likely to yield a positive bet. The degree of political polarisation in the US is quite extraordinary, and the vicious nature of the attacks of the Democrats on the republicans (and vice versa) is appalling to any member of a civilised nation.
    However, maybe it is time the US fell as a coherent political entity. The savagery it has inflicted on so many third world countries since 1945 has completely wiped out any claim the US might have to leadership and moral superiority, so maybe it is time that the US military industrial complex was defanged, by tipping the nation in to bankruptcy?

    Overall, this website comes across as very impressive– which is why I am opening up and saying things that would otherwise fall on deaf ears, so I trust you are not being too presumptuous. These comments are well meant.

    Like

    1. Andrew,

      “What cure do you suggest?”

      That is, of course, the key question. I think it is premature at present. We’re in the stage of a disaster film — like “Contagion” — when the threat is identified and analyzed. Then we work on devising solutions. That’s the hard part. As you said, we are only slowly moving through the first phase and have barely begun to think of solutions.

      “the vicious nature of the attacks of the Democrats on the republicans (and vice versa) is appalling to any member of a civilised nation.”

      I think that is an exaggeration. The current level of political polarization is not unusual in either US or European history.

      “The savagery it has inflicted on so many third world countries since 1945 has completely wiped out any claim the US might have to leadership and moral superiority”

      Sad but true. It’s reversion to the mean, behaving almost as badly as other nations. But let’s keep a sense of proportion. We’ve done nothing as bad as the Soviet Union’s treatment of subject nations. Nothing as bad as the Brits, with their “famines for profit” from 19thC Ireland to Bengal during WWII. The post-WWII USA is a nation of saints compared to Belgium’s treatment of its colonies, or Nigeria’s civil war.

      so maybe it is time that the US military industrial complex was defanged, by tipping the nation into bankruptcy?”

      US military spending is only about 5% of GDP (depending on the definition), far too small to do such a thing.

      Like

  5. “Shopping” as opposed to buying, is a social activity and requires malls, wandering around, looking at things, going for coffee. Not sales efficient, for sure, but an important part of many, many people’s lives. Especially women – unless you think about Home Depot etc. which have men wandering around looking for tool porn. Downtown lunch hour has a lot of shopping going on that is largely time- and boredom-killing. Plus, you get outside the office, some exercise, bump into friends, clear your head. Again, social, though not sales efficient.

    The threat IMO is to the non-specialty, small places. The places where you already know what you want and simply need to get it. Music stores – not musical supplies, which involves a pleasant “shopping” and imagining experience.

    Most of us have been astounded at the growth of malls and shops over the years. Each stealing customers from the others, forcing the decaying ones to reboot …. to steal their customers back. But the principle of “shopping” as a non-goal-oriented, social activity, with a large impulse-buying component, would have to be overturned for on-line sales to “devastate” the storefront, retail business model.

    A long time ago places like Sears had catalogues and you ordered on-line/in the store. My wife was an enthusiastic user. However, I noted she took back 3 out of 4 items that arrived because the picture didn’t quite match the experience. I was appalled at the waste of time going back and forth – because I didn’t understand that the “shopping” part was so important. Getting away from the kids (and me) and meeting her girlfriends etc. was a very large attractive part of shopping – even returning stuff.

    Shopping vs buying has a fantasy, treasure-hunting aspect that can’t be found on-line. On-line shopping has an excitement of instantaneous but delayed gratification – like buying an airline ticket for a holiday a month later. But it has none of the physical and social aspects of shopping.

    Like the book business, I think the death of retail, storefront shopping is a hasty prediction. Shrinkage, yes – how it has supported so many, many businesses can only be because the true profits are so large (or the availability of credit so easy it has pushed people into non-economic activities, especially if you can skim profits/salaries before the loans are paid back). There should be less outlets – some malls I have been in have more than one of the same store, to cater to people coming in different entrances! But only to the point that profits dictate.

    The service sector requires people, though. Some. Already there are far fewer than before. Self-checkout also reduces the people part. Robotics will decrease the human experience, though.

    The study here needs to incorporate the social and “human” purposes and needs/desires of shopping, not buying, That would interest me, but in the meantime, I’m going to meet a buddy at the food court of a nearby mall to discuss a business opportunity, and maybe wander into an electronics supply store to see what toys they might have on sale.

    Like

    1. Doug,

      “Like the book business, I think the death of retail, storefront shopping is a hasty prediction.”

      That’s a silly strawman, predicting the extreme case of “death”. Rather, online shopping is gaining marketshare — forcing closing stores among strong storefront competitors and bankruptcy of weaker ones. As shown here, that will force large scale firings among their direct employees — and more among the workers in their vendors.

      As for the book business, Amazon is the leading — but not only — online vendor. Market share numbers are only loose indicators, but Amazon’s numbers are awesome. They have roughly (using minimum numbers) 40% of the paperback market, 30% of the hardcover market, and 20% of the online book market (showing the range of estimates, here’s an estimate of 45% for Amazon’s 2016 ebook market share).

      Liked by 1 person

    2. Doug,

      I’m umsure why you believe that theorizing offsets the plain numbers. But time will tell.

      Bookmark your comment. Revisit in five years. My forecast is that after the coming massive bankruptcies have closed many stores — including malls — you can post your reaction.

      Like

    3. I can confirm that Amazon has snapped up huge swaths of the ebook market – the main competitor has been the Nook and I gather that has done poorly. If they have a problem, it is that people may not eventually have much eagerness to pay for home-made eBooks, but they instituted a subscription service, on the “streaming music” model, years ago.

      The big problem here for me was that you don’t make a lot of money unless you manage to get in the absolute top tiers. So it’s great for those top tiers (however you reach them) or for people who are doing it as a hobbyist sideline, but there isn’t much of a middle. Just like a lot of other fields, right?

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    4. Dana,

      “it is that people may not eventually have much eagerness to pay for home-made eBooks”

      I don’t believe the numbers bear that out. Many are niche products, in effect creating new markets — which in aggregate add up to a lot. But as with any product, building a brand for a book is difficult and expensive. The ebooks that succeed are those either with a publisher (e.g., 50 Shades of Grey) or an associated market — usually by the author’s name or an institutional affiliation.

      “The big problem here for me was that you don’t make a lot of money unless you manage to get in the absolute top tiers”

      Just like most services. It’s worst for intellectual services — e.g., art, literature, poetry — because there is a massive surplus of suppliers. As society grows richer, the surplus of people with training, ability, and time to produce art grows ever larger. Hence it is becoming more difficult to earn a living in many of these fields. I believe the change in delivery systems, such as ebooks, is a secondary factor.

      The decline of the middle class, the largest audience for intellectual products, makes this trend even worse. So art is moving back to a pre-modern model, where art is subsidized by rich patrons. That’s also happening with non-profits, as charitable giving has become a matter of appealing to the rich — and non-profits become controlled by the 1%.

      Like

  6. What’s happening is the reverse of of the 1920s, when forward thinking industrialist Henry Ford realized that he needed to pay higher wages so his employees could afford to buy his products. What happens when enough jobs have been destroyed that consumers can no longer afford to buy anything? The whole economy collapses, that’s what.

    Like

    1. Karl,

      Unfontuately, that’s a myth. Ford was an SOB as a boss, as seen by his illegal and violent response to their later efforts to organize a union. Ford raised wages to $5 in 1914 because the boom era put pressure on wages, and his factories required unusually skilled and hard-working workers — which only higher wages would gain and retain. From the Michigan website:

      “At the time, workers could count on about $2.25 per day, for which they worked nine-hour shifts. It was pretty good money in those days, but the toll was too much for many to bear. Ford’s turnover rate was very high. In 1913, Ford hired more than 52,000 men to keep a workforce of only 14,000. New workers required a costly break-in period, making matters worse for the company. Also, some men simply walked away from the line to quit and look for a job elsewhere. Then the line stopped and production of cars halted. The increased cost and delayed production kept Ford from selling his cars at the low price he wanted. Drastic measures were necessary if he was to keep up this production.”

      Also see “Why Did Henry Ford Double His Minimum Wage?” by Jeff Nilsson in the Saturday Evening Post, 3 January 2014.

      The combination of slow US economic growth (2% GDP since the brief bounce after the crash), automation, an intense foreign competition make our era quite unlike 1914.

      “What happens when enough jobs have been destroyed that consumers can no longer afford to buy anything? The whole economy collapses, that’s what.”

      I doubt we’ll get a cliff-like event like that, but you are essentially correct. Concentrating income in the hands of the rich — who save most of their income (billionaire cannot spend most of their income, and few choose to give it away) slows consumption growth — and investment — and hence economic growth. As I’ve shown in so many posts, that has been happening since roughly 1970.

      Perhaps eventually the American people will awake and force change. So far we’re drifting the other direction. The Trump team is accelerating that process.

      Liked by 1 person

    1. Breton,

      Good point about the demographics. Not only is the average age of consumers rising — and the old consume less — but the young are increasingly poor. Either of middle class stock stuck in low-pay jobs or (often and) burdened by large education loans, or of the high fertility lower middle class and underclass.

      Like

  7. I am not presenting strawman arguments. Just a comment from my own magazine publishing business. People still like paper. The magazines on racks used to return or destroy 3 copies for every one sale. The margins were high for one and had to be for such inefficiencies to survive. Knock them down a bit and they fail. But people still buy. We still distribute 36,000 each issue. Our return rate of 3% has remained solid over 23 years. What has happened is marginal or superfluous magazines have folded.
    Shrinkage yes, but the concept, no.

    My argument is observational: shopping rather than buying is a social desire. Shrinkage yes, collapse, no. I suggest the theorizing on your part is a hyper extension of a short term trend, correct as a pattern for now but not a pattern to collapse. Like Arctic ice extent and global temperatures.

    Like

    1. Douglas,

      Just to repeat: “the death of retail, storefront shopping” is a strawman argument because I am aware of nobody expert in the field who says storefront shopping will die (i.e., it refutes an argument that was not given). Magnitudes matter.

      This post says that online retail has increased as a share of total retail, it almost certainly will continue to increase its market share, and that this will force continued store closings, mall closings, and a substantial decrease in retail employment. That is not the “death of storefront shopping”.

      If you disagree, please explain at what point this trend will stop. A rebuttal that says it will stop before storefront sales “die” is not helpful.

      Like

  8. For some goods, on-line shopping is MORE fun because it is so “efficient” and the selection so amazing. I have…esoteric…tastes in music, and the amazing growth of the online music marketplace offers extraordinary opportunities no record store stocking a few dusty LPs can ever match.

    Like

    1. Brian,

      Great point. Outside cities and mail order, micromarkets (which can be large on a global scale) flourished only with online! My wife just bought some obscure quilting stuff from a New Zealand shop — the only place online in the world that has it.

      Like

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