Death of the Salesmen: Technology's Threat to Retail Jobs

Should we mourn them?

Ariana Lindquist/Bloomberg/Getty

James Cash Penney had a dubious name for a department-store entrepreneur, sounding more like a fictional character from a capitalist comic book. For decades, the eponymous company he founded in 1902 lived up to the superheroic promise of his handle, becoming one of the most successful retailers of the 20th century.

But JCPenney isn’t wearing well in its 111th year. Since the financial crash of 2008, its stock has plummeted by 50 percent, and last Christmas season, same-store sales fell from the previous year by a third—a drop so disastrous, it’s practically historic. In March, the company announced another round of layoffs, which brought the one-year bloodletting to 20,000 jobs.

It is just the latest bold-faced retail brand on the brink of extinction. Circuit City is dead; Best Buy is dying. Borders is gone; Barnes & Noble is shuttering storefronts. Kmart has closed 40 percent of its stores in the past decade. As recently as 1998, Sears was in the Dow 30. Today, Sears Holding isn’t even in the S&P 500.

Companies come and go, you might say, and American families have more-serious things to worry about than the fate of Sears’s shareholders. But the decline of big-box retail and department stores could also mark the fall of retail as a job engine.

Throughout the 20th century, American stores were the locus of low-skilled employment. The total retail workforce tripled between 1940 and 2000, and for much of the century, the sector employed more people than construction and health care combined. Even today, the two most common occupations in America, by a wide margin, are retail salesperson and cashier. Last year, 7.6 million people held those jobs—more than the total number of workers in Florida.

But retail employment is following a familiar path, one already beaten by farmers and factory workers. In 1900, more than 40 percent of the U.S. workforce was in agriculture. Today, that number is about 2 percent. In 1950, about one-third of Americans worked in manufacturing. Today, about 10 percent do. This is what happens to industries that are bitten by the productivity bug. Jobs are plentiful, and employment climbs and climbs, and then something happens—somebody invents the tractor; somebody builds an assembly-line robot—and suddenly the trend line finds itself on the long side of the mountain.

Retail still employs one in nine working Americans, and retail jobs have grown since the bottom of the Great Recession. But we might be witnessing the moment when it passes over the mountaintop. Between 1950 and 1990, retail employment grew more than 50 percent faster than the general workforce did. Since 1990, it’s grown 50 percent slower. Retail now employs fewer people than it did in 1999. And those people work significantly fewer hours, too.

Sam Walton started his career as a young trainee at JCPenney in the early 1940s and ended it as the CEO of the largest retailer on Earth. Today, Walmart employs 1.4 million Americans. Its impact on shoppers—especially low-income shoppers in rural America and the South—can scarcely be overstated. The introduction of one local supercenter can save a region’s lowest-income households as much as 30 percent on food, after accounting for other stores’ lowering their prices to compete. The “Walmart Effect” is contagious: lower prices beget lower prices, and the savings multiply across a community.

But the jobs don’t. One Walmart worker replaces approximately 1.4 other local retail workers, according to a 2008 paper by David Neumark, Junfu Zhang, and Stephen Ciccarella. The Walmart Effect manifests not just as a double-digit price reduction, but as the disappearance of about 150 retail jobs per county in which Walmart operates, the researchers found (other studies show a more benign impact). “Walmart is remarkably labor-saving,” said Leonard Nakamura, an economist at the Philadelphia Fed. “It has basically double the sales per square foot of a classic retailer. If you’re Kmart, and you’re going into competition against somebody who’s twice as efficient, you have to reduce the number of employees.”

Looming over the online retail market is Amazon, which accounts for a quarter of all online purchases, and has by now fully grown into its name.

Yet Walmart, of course, isn’t the biggest threat facing retail workers anymore. That would be the inexorable growth of e‑commerce, which is poised to capture more than 8 percent of total retail sales by the end of 2013, according to Forrester Research. Looming over the online retail market is Amazon, which accounts for a quarter of all online purchases, and has by now fully grown into its name. Amazon amasses more than $600,000 in sales per full-time employee—three times the retail average.

The Web has changed how shoppers find what they’re looking for. Browsing, narrowing down options, and purchasing used to involve as many as three trips to the mall. But with smartphone penetration screaming past 50 percent in the U.S., all three can be done at home, on the couch, on the street—anywhere, really. Shoppers use the Web to research more than half of all the goods they eventually buy in person, said Ron Josey, an Internet analyst with JMP Securities. “By the time they get to the store, they already know what they want.”

Twenty years ago, the shoppers went to the stores. Today, the stores go to the shoppers. From the floor salespeople replaced by informative Web sites to the cashiers nudged aside by automatic checkout machines, the daily tasks once performed by store employees are either being taken over by machines or outsourced to customers.

Should we mourn the end of retail? The exodus from American farms marked the end of self-sufficiency and an uprooting of families from their heritage. As manufacturing sputtered, so too did a jobs engine that could carry people with few initial skills into the middle class. It’s harder to get nostalgic about mall jobs and supermarket cashiering.

Standard economic theory suggests that, in a smoothly functioning economy, low-skill jobs really do grow on trees, and are largely fungible—it’s the steady loss of middle-class jobs we should worry about. And indeed, occupations with median hourly wages of less than $14 accounted for nearly 60 percent of all job growth between 2008 and early 2010. Retail jobs aren’t going suddenly, cataclysmically extinct; they’re likely to decline slowly. A cursory glance at the fastest-growing sectors suggests that as retail declines, its workers will simply stream into menial health-care and food-service jobs.

Yet there is a worse scenario, in which the squeeze in retail work intensifies competition for other low-skill jobs, pushing down wages at the bottom and pushing some people out of the labor force entirely. This possibility should not be dismissed too readily: The contraction of the U.S. workweek beginning in the 1960s was “primarily caused” by the contraction in retail work, according to the Bureau of Labor Statistics. The extra hours were not absorbed by other sectors.

The depopulation of retail has come with other downsides. “After the crisis, retailers dropped staff and rushed to technology to save them,” said Piers Fawkes, a retail analyst with PSFK, a consultancy focused on innovation. “Web sites, kiosks, QR codes, and all this in-store technology replaced the human touch.” Among the results: longer checkout lines, less help, more disarray. Walmart, which has cut its total workforce by 20,000 since 2008, despite opening 455 new stores, has finished last among department and discount stores in the American Customer Satisfaction Index for six years in a row.

Some stores have resisted the temptation to cut workers—and have benefited from higher sales and happier customers. Costco, Trader Joe’s, and QuikTrip not only have more (and better-paid) salespeople, but also report more sales per employee than their immediate competitors, according to research by Zeynep Ton, a professor at MIT’s Sloan School of Management. Other stores, like Uniqlo, a mid-level fashion retailer, and Wegmans, a grocery chain, have similarly demonstrated that you don’t need to embrace retail’s post-employee strategy to make a strong profit.

Increasingly, there seem to be two kinds of stores—those in a race to the price bottom, and those closely guarding the patina of a shopping experience. Perhaps that’s because, more and more, there are two distinct kinds of customers. There are the low- and middle-income families—squeezed between cheap wages and the high cost of essentials like education and health care—who hunt bargains. And then there are the urban bourgeois—those who rely on Trader Joe’s for lunches and Apple for phones—who are rich enough to value something above the very lowest price. “Walmart, focused on the bottom 50 percent with efficiency, is competing on price,” said Leonard Nakamura. “But stores like Wegmans aren’t. They’re competing on experience.”

When Ron Johnson, the architect of Apple’s lily-white showrooms, became the CEO of JCPenney in 2011, he brought with him a specific approach. “People come to the Apple store for the experience—and they’re willing to pay a premium for that,” he wrote in Harvard Business Review. A year and a half after Johnson pledged to replace coupons with culture, causing sales to plummet, he resigned. It would seem that customers besieged by stagnant wages and household debt don’t want a shopping experience, after all. They just want their coupons. Ironically, it is precisely this always-low-prices mind-set that has decimated retail as an American jobs engine. Cheap prices and cheap workers—that is our vicious cycle, and the ultimate American shopping bargain. We are getting exactly what we pay for.

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