An upbeat jobs report and a series of positive economic indicators bode well for consumer spending, but whether that will translate to brighter retail sales and profit is another story.
On Friday, the Labor Department reported a better-than-expected increase in February nonfarm payrolls and said average hourly earnings for employees in the private sector rose 2.8% from a year earlier.
While the overall numbers are encouraging, economists cautioned the key question is whether the pace will continue. Continued growth is critical to consumer spending, which makes up 70% of the economy.You've got to have more people working and more people earning more to help move the dial.
“The fundamentals of the economy seem to be pointing in the right direction, but it’s just not in a breakout speed,” said National Retail Federation Chief Economist Jack Kleinhenz in an interview. The jobs number “is good for consumer spending going forward, but it’s also important we see wage growth, (which) is below where we would be in an economic recovery. You've got to have more people working and more people earning more to help move the dial.”
Positive economic numbers aside, many retailers, especially brick-and-mortar chains, are still struggling to figure out how to fend off competition from online retailers led by Amazon, and how to better integrate their in-store and online operations to drive store traffic. In contrast with jobs, housing and other economic indicators, fourth-quarter retail profit is expected to drop 1.3%, the third time in the last four quarters that year-over-year profit in the sector has declined, Retail Metrics data showed.
“'Seismic’ shifts in both spending channels and services/experiences vs. hard goods, sluggish (same-store) sales and headcount reductions have permeated the industry,” said Ken Perkins at Retail Metrics, echoing Target CEO Brian Cornell’s assessment of the market after the No. 2 U.S. discounter reported disappointing results.
That seismic shift can be seen in the government’s job report. While the report showed job gains in construction, manufacturing, health care and other sectors, retail industry jobs actually declined. Even though some of that decline may come from typical post-holiday season slowdown, the drop came as a slew of retailers, including Macy’s, Sears, J.C. Penney, and Staples announced store closings.
Retail continues to lead all sectors in job cuts as more sales shift online and more stores shrink their footprint, according to outplacement and executive coaching firm Challenger, Gray & Christmas data. For January and February combined, retailers have announced almost 34,400 job cuts, nearly six times more than the the cuts in the energy industry, the second highest sector so far this year, Challenger data showed. In addition to Penney, it cited cuts at Family Christian Stores and L.L. Bean, which is seeking to cut 10% of its workforce. (To be sure, it said retailers seemingly also are adding jobs just as quickly as they are cutting.)Retail workers will need to show a demonstrable proficiency in tech to secure a position.
“The tumultuous shift to digital continues to cost jobs,” John Challenger, CEO at the outplacement firm, told eMarketer. “We’ll likely see more job loss in retail as the traditional model falters and the industry scrambles to pivot to online. While this shift will ultimately lead to new jobs, the skill sets needed will look quite different. Retail workers will need to show a demonstrable proficiency in tech to secure a position.”
Meanwhile, increased competition online also has forced retailers to cut prices to win or maintain market share. The NRF’s Kleinhenz said that prices on goods such as apparel, shoes, and electronics have been flat or declining the last two and a half years. “Competition is very important to the pricing power of retailers,” Kleinhenz said. “To sustain themselves, they have to figure out how the product they provide is unique so they differentiate themselves. It’s been a very competitive marketplace. Consumers have been conditioned to promotions and discounts.”