Department store woes may prompt long-term labour shift : BoAML report

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Online retailers are stealing growth from conventional brick-and-mortar department stores. Could they be poised to gobble up some their displaced workers, too? The slump hammering department stores may be the harbinger of a broader structural change that could prompt a significant shift in the labour force, as shuttering stores leave retail employees searching for a career change, according to a Bank of America Merrill Lynch Global Research report on Friday.

Despite a pick-up in hiring over the holiday season in December and January, retail jobs fell by a net 61,000 over February and March, the report said. While BoAML analysts initially attributed the decline to a seasonal drop-off, data – such as declining growth in aggregated card spending at department stores – suggest that the weakness may be structural, not merely transitory. In response, some retailers are reducing their brick-and-mortar presence to focus on “omnichannel” platforms, including online. For instance, department store operator Macy’s announced last year that it would close 100 stores, a move that was expected to affect thousands of jobs.

Department-store employment peaked around 2000 and since then has been on the wane, including major layoffs in 2011 and 2012 that flew under the radar because employees could find employment at other retailers, said BoAML analyst Joseph Song. Department stores were the hardest hit, compared to the rest of the retail sector, he said. Over the past three years, the retail sector generally added between 15,000 and 20,000 jobs a month, while department store employment declined by about 1,000-3,000 a month during the same period.

US department stores payroll (in thousands). Chart courtesy of Joseph Song/BoAML

Now, with job creation across the board slowing, that has raised the question: Where will displaced retail employees go? The report said that about 42 per cent of unemployed retail workers in 2016 ultimately landed at another retail gig. As the retail model changes, however, to rely less on human sales associates and more on tech platforms online and on smartphones, that may prove more difficult.

Leisure and hospitality, education and health and professional and business services sectors have picked up the largest non-retail share of displaced retail employees since 1996, the report showed. One sector that has been on the rise in recent years, however, is transportation and warehousing — where overall demand has risen as a response to the growing footprint of sites like Amazon, which recently announced its plans to add 100,000 jobs in the US over the next 18 months. The efficiency gains that come from a pivot to digital sales could mean, however, that not every in-store retail employee will find work in the non-store sector, the report added. While that’s good for the consumer’s wallet, it may not be so great for the displaced workers:

“(G)reater productivity will also inherently disrupt the retail workforce, leading to a structural shift in the labor market. The question isn’t if but when this shift takes hold…It may be too soon to see notable changes in the overall economy or displaced workers are finding jobs quickly in the tight labor market. Also the recent declines – although significant for the specific retail sectors – may not be enough to show up in aggregate number. However, we think the pace of adjustment away from brick and mortar toward online is meaningful and is likely to impact the overall data in time.”

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