Friday, May 16, 2014

The Amazon Factor and America's Changing Retail Environment

In recent months, several of America's largest retailers and their Canadian subsidiaries have cut the number of employees working in their brick and mortar stores and closed thousands of locations.  While retail jobs are among the lowest paying occupations in the United States, according to the Bureau of Labor Statistics, approximately 9.7 million workers or 7.3 percent of total employed workers in the United States work in retail in some capacity, as either cashiers, counter clerks or retail supervisors.  With the long decline in the number of manufacturing jobs (in blue) in the United States, a sector that has seen 5.2 million jobs evaporate over the past 14 years,  retail jobs (in red) are filling at least part of a very significant job gap as shown on this graph:

Unfortunately, the wages for retail jobs are much lower than those for manufacturing jobs as shown on this graph:

As I noted in the first paragraph, even poorly paying retail jobs are becoming scarcer, thanks in part to a combination of two factors, one of which is weak consumer spending.  The other reason that bricks and mortar retailers are suffering is the advent of online retailing.  As 2014 passes, with the recent announcements of retrenchment in the retail sector, I suspect that these two factors will work in harmony, resulting in the layoffs of tens of thousands of retail workers. 

Let's start by looking at Walmart, the world's largest retailer.  Walmart employs 2.2 million workers  in its 10,773 global store network.  It employs 1.3 million Americans in its 4205 U.S. Walmart and 633 Sam's Club locations.  To put the 1.3 million number into context, total employment in the United States is 132.589 million.  This means that Walmart employs roughly 1 in every 100 workers in the United States!  In 2013, Walmart's full year net sales rose by 4.95 percent to $466.114 billion with net income of $16.999 billion.  If we take the number of employees and divide it into annual net sales, Walmart sells $211,870 for each person that it employs.

Now, let's switch gears and look at another large retailer that has a different focus.  The world's largest online retailer is Amazon.    Amazon is a prime example of the replacement of humans with automation, particularly the use of robots in their warehouses as shown on this video:


In case you've forgotten, KIVA is a wholly-owned subsidiary of  There is no doubt that this is pretty cool technology and that it does increase efficiency, however, it does replace human workers.

Now, let's look at a few statistics.  According to Amazon, the company employs more than 88,400 people around the world.  In the fourth quarter of 2013, Amazon's net sales were $25.59 billion, up by 22 percent over the same period one year earlier.  In total, for the full year 2013, net sales increased 22 percent to $74.45 billion.  Net income for the full year was $274 million.  If we take the number of employees and divide it into annual net sales, Amazon sells $842,190 worth of goods for each person that it employs.  This is just under four times the per employee net sales that Walmart has.  In other words, if Amazon were to hire at the same per employee net sales rate as Walmart, it would employ an additional 263,000 workers.

While Amazon has a very successful business model, there is no doubt that Amazon's use of automation and their online-only presence has led the company to hire far fewer workers than a normal bricks and mortar retailer.  Don't get me wrong, I'm not saying that there is anything particularly wrong with this, but my suspicion is that the "Amazon Effect" is starting to ripple through the retail sector, most recently with Best Buy, Radio Shack and Staples announcing the  closer of hundreds of stores and the loss of tens of thousands of jobs in a retail sector that they share with Amazon.  Perhaps that explains in part why the growth in retail sector jobs has been less than half the historical level over the past decade when the average growth rate fell to an average of 0.17 percent over the past decade when compared to the historical pre-2004 average of 2.5 percent as shown on this graph:

Perhaps this also partially explains wage stagnation in the retail sector which have only increased by 11.2 percent since 2007.  After all, when demand is low, prices for labor remain low as well.


  1. Once, long ago, I was a retail clerk selling men's suits. I knew how to find different sizes in our stock room, how to make out a sales slip, how to agree with anything a customer says. I wasn't a clothier. We did have a real expert on staff, luckily for our customers, but he couldn't be everywhere. Everyone who shops knows that, with rare exceptions, retail clerks are dummies (like I was).
    Given an alternative, who would want to drive, find a parking space, wander endless aisles of partly organized goods,and deal with a semi-sentient uninterested young person, just for a routine purchase? It's a terrible experience.
    On-line shopping is so much better. Aside from grocery stores, I haven't been inside a retail store for several years.
    I don't see any future for old-style retail sales.

  2. It is hard to see why Amazon has any fans when you consider how they abuse and exploit the brick and mortar stores that line streets throughout America. These are the stores that employ our family members, support little league teams in the community, and add value to our lives. These stores build or lease space, buy supplies from the other local businesses, and pay both sales and real-estate taxes. While Amazon sends out the signal that their customers are smart, forward thinking, and upscale they exploit America and have an evil side, this is a side we should and must recognize. The article below delves into why I give Amazon two thumbs down.