One reason the US government is investigating Amazon.com Inc. for antitrust violations is concern that the company is undermining the retail industry. Treasury Secretary Steven Mnuchin says flatly that Amazon “has destroyed the retail industry across the US”.
The number of retail jobs has indeed fallen over the past few years — if so far only slightly. Going forward, the jobs that remain will also shift focus: retail workers will increasingly cater to wealthier, rather than middle-class, consumers.
The trend is already visible in struggling malls and big-box stores. The Toys “R” Us bankruptcy single-handedly did away with tens of thousands of jobs. Gymboree, Charlotte Russe and Payless lead the list of other middle-class US retailers that have gone bankrupt in recent months.
Amazon’s might is only one reason
Consumers turning to Amazon and other online sellers for toys, clothing, home furnishings and other goods is only part of the reason physical retailers are struggling. Private equity firms contribute to the problem by buying retail companies and then saddling them with debt, making it impossible for the firms to invest in their own businesses.
This can lead to a death spiral: Stores grow older and lose relevance to consumers, leading private equity owners to cut costs, lay off workers and ultimately close stores. Sears Holdings Corp. has been the epitome of this trend.
The rising cost of retail labour adds to the pressure. For more than a year now, the increase in average hourly earnings for US retail workers has exceeded 4 per cent on an annual basis — due to a combination of a tight labour market, increases in the minimum wage in states such as California, and high-profile efforts by large employers to raise starting wages. With Whole Foods (owned by Amazon) setting its starting wage at $15, Target aiming for the same level by 2020, and Walmart presumably close behind, smaller and less profitable retailers can’t keep up.
Research on higher minimum wages in the restaurant industry has found that they tend to drive out restaurants with comparatively low customer reviews. In retail — a competitive, low-margin industry — the least efficient companies and those with the lowest profit margins have the hardest time raising prices enough to keep wages competitive.
As retail employment thus hollows out, only some stores will be able to maintain a labour-intensive model: the big chains that still have plenty of foot traffic and revenue, and stores that cater to wealthy customers.
For the rest, expect to see what I observed at a Target store last weekend. A “now hiring” sign on the door advertised the new $13-an-hour starting wage.
But only one employee manned the checkout area, and that person was mainly ushering customers to the self-checkout registers. Amazon’s attempt to build convenience stores without cashiers, and the trend among restaurants to replace wait staff with ordering tablets points to a future in which middle-class consumers still shop in stores and eat in restaurants, but interact with fewer humans while they’re there.
The retail workers who remain stand to make more money than they once did. But those people who still bag your groceries or ask if you want fries with that will become, like the milk-delivery men before them, a nostalgic memory.