About one in 10 Americans works in retail

About one in 10 Americans works in retail
geralt / Pixabay

In 1886 there were only 38 states in the United States.

Electric power was still cutting edge technology that few people had ever seen.

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The Statue of Liberty hadn’t even been dedicated yet.

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But it was that year that a man named Richard Sears founded a small retail company in Minneapolis, Minnesota that would grow into a retail juggernaut.

Sears was truly the Amazon of its day.

Even in the late 1800s the company was able to deliver just about any product you wanted right to your doorstep.

This was no small feat considering the first delivery truck wouldn’t be invented until 1895. There was no transportation infrastructure. And two-thirds of the population lived in remote rural areas.

Yet despite those challenges, Sears was still able to put any product you wanted in your hands.

Over time as consumer trends changed, the company started opening physical retail stores.

And once the concept of the ‘shopping mall’ became popular, Sears department stores became a mainstay at malls across America.

To give you an idea of the size and dominance of Sears back at its peak– the company owned stock broker Dean Witter Reynolds (now part of Morgan Stanley), Coldwell Banker (real estate brokerage), Allstate Insurance (currently a $33 billion company) and it started the Discover card (a $22 billion company).

Sears seemed unstoppable… a company so large and powerful that it would rule retail forever.

Then Wal-Mart entered the scene.

And after years of focusing on efficient logistics and cost savings, Wal Mart eventually outmaneuvered Sears to become the world’s largest retailer.

By 2001, Wal-Mart’s revenues were about five times that of Sears.

Then Amazon was founded… and consumers began changing their tastes to shop online.

Sears totally missed the trend. And today the company is a tiny shell of its former self.

Over the past three years alone, Sears has lost more than $5 billion. And its stock price is down nearly 75% since 2014.

Plus the company has had to lay off more than half of its peak workforce, around 200,000 employees.

To add insult to injury, the company spent about $6 billion over the past decade buying back its shares at prices as high as $174 a share.

Shares now trade below $9. That’s a 95% loss to shareholders.

Sears recently announced it will close an additional 43 stores (on top of the 265 closures it already announced this fiscal year).

This will leave the company with 1,140 stores – just above half its 2012 size.

This is a death spiral. And it could mean the sudden loss of 140,000 American jobs.

And that’s just Sears. We could see several, large retailers shutter causing hundreds of thousands of lost jobs.

Retailers have announced more than 3,200 store closures this year. And investment bank Credit Suisse expects that number will increase to more than 8,600 before the end of the year.

For the sake of context, the WORST year on record for retail store closures was in 2008 when the global financial crisis kicked off.

But even in 2008, only 6,163 retailers closed.

Bear in mind that about one in 10 Americans works in retail.

And given the rise of e-commerce, most of those retail jobs are going away. Quickly.

E-commerce currently accounts for 9% of the approximately $22 trillion in annual retail sales, up from 0.6% in 1999.

And that number is only growing.

Most retail stores operate very LOW margin businesses. They rely on having LOTS of customers in order to stay profitable.

If even a small percentage of their prospective customers stay home and shop online, they’re finished– from Sears all the way down to the small mom and pop stores.

We could see hundreds of thousands of retail workers lose their jobs as companies like Sears fail.

Sure, e-commerce will pick up some of the jobs.

Large e-commerce companies like Amazon have had to quickly build infrastructure and warehouses to serve customers around the country. That requires lots of hiring.

But it’s temporary work.

Think of it this way: it took a lot of men to lay railroad tracks across the US. It takes far fewer workers to maintain the rail system.

And as shipments increase, you simply run more cars across those tracks.

Plus, e-commerce warehouses are becoming more automated and efficient, requiring less human labor than ever before.

This sort of creative destruction and disruption isn’t anything to be afraid of; there aren’t exactly too many blacksmiths and buggy repairmen anymore either.

Progress occasionally requires the decimation of entire industries, and that’s what’s happening now.

In the long-run it’s better for everyone. But shorter-term, there’s going to be a lot of pain.

Some of the largest and most vulnerable retailers include Sears, Macy’s and JC Penney, and in total those companies employ close to 400,000 people.

All three of these companies could – and probably will – go bankrupt. But it would only take one of these stores going under (a near certainty) to roil the US economy.

You may remember during the US Presidential campaign that candidates Trump and Clinton made a big deal about the declining number of coal jobs in the US.

To put things in perspective, the US coal industry employs just over 76,000 workers.

Sears alone employs almost double that amount.

And the pace of job losses across the entire retail sector is gaining steam.

The US economy has been in ‘recovery’ now for more than eight years, i.e. it’s been nearly 100 months since the end of the last recession.

Yet the average time between recessions in modern US history is 57 months, according to the National Bureau of Economic Research.

In other words, the economy is overdue for a recession.

And the rapid loss of hundreds of thousands of jobs could certainly end up triggering it.

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