The sleigh bells are ringing, but this year they sound more like a funeral to the physical stores. As customers brace themselves for the crucial Christmas season, roughly 40,000 jobs were slashed by retailers in November.
This is a concerning indicator that consumers are cutting back on spending and increasingly opting to purchase online. It may herald a second retail endgame for traditional stores still hurting from the epidemic.
Plummeting Holiday Hiring
November saw a loss of 38,400 jobs in the retail trade, according to the Bureau of Labor Statistics. Department shops (which lost 19,000 jobs) and sellers of furniture, electronics, and appliances were among the many businesses hit hard by the layoffs.
According to Challenger, Gray & Christmas, an employment firm, overall holiday hiring has dropped to the lowest level in a decade. This year, according to Becky Frankiewicz, President of ManpowerGroup, there has been “quite moderate” hiring in the retail industry, which is unusual compared to prior holiday seasons.
Holiday spending forecasts are not looking good due to the low hiring numbers. “This implies that hiring of seasonal workers around the holidays could be a bit less than expected, and may also result in weaker seasonally adjusted holiday spending,” said Veronica Clark, a Citi economist.
E-Commerce Migration Accelerating
There’s no hiding the fact that, over the last decade, more and more of consumers’ spending has gone online. However, many experts feel that consumers’ habits have changed irrevocably due to the pandemic’s acceleration of e-commerce adoption.
As if to show their agreement, stores are reducing the number of employees working in-store in favor of focusing on digital processes. Frankiewicz claims that during times of high online sales, the focus of recruiting moves to logistics and delivery.
Employment in transportation and logistics also declined in November and October as stores cut back on hiring.
Rising Labor Costs
Retailers may be scared off by the prospect of increased labor expenses, even while consumers still have spending power. Consistent with a recent trend, wages increased by 4% year-over-year in November.
Hiring reluctance may be an indication of consumer spending cuts impending in 2024, when economists predict a general slump. If a slump is on the horizon after the holidays, retailers could be hesitant to overextend their staff expenditures.
The retail employment losses in November were worrying, but they weren’t totally unexpected considering the trends recently. The addition of 40,000 jobs in related service industries, such as hospitality and leisure, occurred at the same time.
Overall, job growth is still respectable, even though merchants are acting like scrooges. Wage increases kept falling, and the unemployment rate fell to 3.7%. Despite the cautious mood in store corner offices, consumers seem ready to spend their savings this holiday season.
“The strong holiday spending numbers that we have seen were likely supported by income growth,” the BofA economics team had said.
So the Consumer Isn’t Doomed…Yet
Never underestimate the gravity of the November retail employment slump; the industry has only just begun to recover from the devastating effects of the pandemic. Retailers may face a second reckoning as they accept the reality of running leaner operations in a digital-first world.
Although shoppers are still spending money, it’s more often than not done online rather than in physical stores. It might lead to more difficult changes for more conventional stores. Despite the cloudy forecast, the holidays may still be sunny for the optimistic American consumer.
Retail Job Losses in Context
- A monthly decline in retail employment not seen since December 2020 occurred in November.
- Despite the pandemic, retail employment is still higher than it was in February 2022.
- Recruitment efforts, however, have been notably sluggish in the run-up to the holidays.
- Experience-based purchasing is driving rapid growth in the hospitality and leisure industries.
Biggest Declines Were in Department Stores and Specialty Retail
- The retail sector as a whole (including department stores) shed 19,000 jobs.
- 16,600 jobs were cut from clothing and accessory stores.
- Retailers of furniture and home decor shed 5,800 jobs.
- 3,500 jobs were cut from electronics and appliance stores.
Consumers Still Spending – Just More Online
- E-commerce represented 14.8% of total retail sales in Q3 2022, up from 11.2% in Q1 2020
- Amazon Q3 sales increased 15% year-over-year
- Cyber Monday online sales hit record $11.3 billion, up 5.8% from 2021
Economic Outlook Still Strong for Consumers
- Unemployment at 3.7%, near historic lows
- Wages grew 4% annually in November
- Household savings rates remain elevated over pre-pandemic levels
- Consumers have “excess” savings of $1.7 trillion per JPMorgan Chase
So What’s Next for Brick-and-Mortars?
- More pain likely as trends accelerate toward e-commerce and leaner operations
- Mobile point-of-sale, contactless checkout and other tech on the rise
- Further consolidation around big box/discount stores
- More specialty chains struggling to compete with digital-first landscape
Is that all? Consumers will be paying more on sofas than in stores this holiday season, but they still have ample spending power. Even once the dust settles, stores still run the danger of a recession and may have to face a second reckoning.