The Retail Bubble

The editors of the New York Times are alarmed at the rate of closing of retail stores and the attendant loss of jobs among retail sales clerks:

A recent report in The Times documented the decline of suburban malls as online shopping advances. The e-commerce share of total retail sales has doubled roughly every six years since 2004, reaching 8.3 percent at the end of 2016. One result is that employment at retail outlets has fallen. Department stores and other general merchandise stores, like supercenters and warehouse clubs, have been hit especially hard, shedding 89,000 jobs from November through March.

However, the rise of eCommerce can’t possibly explain that. Retails sales have risen sharply:

That’s a lot more than the 8.3% by which online has risen. And retail employment continues to rise as well:

The editors of the Wall Street Journal have a better explanation. There has been a retail bubble for years:

Through April 6, closings have been announced for 2,880 retail locations this year, including hundreds of locations being shut by national chains such as Payless ShoeSource Inc. and RadioShack Corp. That is more than twice as many closings as announced during the same period last year, according to Credit Suisse.

Based on the pace so far, the brokerage estimates retailers will close more than 8,600 locations this year, which would eclipse the number of closings during the 2008 recession.

At least 10 retailers, including apparel seller Limited Stores Co., electronics chain Hhgregg Inc. and sporting-goods chain Gander Mountain Co., have filed for bankruptcy protection so far this year. That compares with nine retailers that declared bankruptcy, with at least $50 million liabilities, for all of 2016.

The seeds of the industry’s current turmoil date back nearly three decades, when retailers, in the throes of a consumer-buying spree and flush with easy money, rushed to open new stores. The land grab wasn’t unlike the housing boom that was also under way at that time.

“Thousands of new doors opened and rents soared,” Richard Hayne, chief executive of Urban Outfitters Inc., told analysts last month. “This created a bubble, and like housing, that bubble has now burst.”

Even the editors of the Times are forced to admit that there’s little reason to worry about a surge in unemployment due to the collapse of the bubble. While the rise of online retail reduces the demand for sales clerks, it has resulted in an increase in employment in transportation and warehousing and, importantly, sales of warehousing systems and equipment:

In the past year, about the same number of people who recently lost jobs in those large retail outlets got jobs in transportation and warehousing, an indication that online shopping created jobs even as the decline in suburban retailers eliminated them. In addition, as The Times report noted, upscale malls are thriving, and some online retailers are opening brick-and-mortar stores.

Yet while blaming technology is misdirected, this shift in employment raises important challenges and implications for public policy. People who are laid off need help, and newly created jobs are not necessarily perfect substitutes for lost jobs. The government needs to effectively manage inevitable change for the greater good.

And the new jobs pay better than the old ones did.

So what’s behind the NYT’s concern trolling? It’s not technological employment but a shift in where jobs are being created. They’re moving from big cities like New York to suburbs and exurbs as this map of Amazon’s fulfillment centers illustrates:

Temporary localized unemployment sounds to me like a call to action for state and local governments. Unfortunately, they’re so busy paying for health care and the pensions of former state and local employees they don’t have time for much of anything else.

9 comments… add one
  • Ben Wolf Link

    I think it’s undeniable we’ve had an unsustainable retail space glut that began during the Clinton Administration and accelerated until the financial crash. And I say it was unsustainable because it was funded with growth in consumer debt outpacing ability to service the payments.

  • What bugs me is that there’s no recognition that we’re subsidizing that glut as a matter of public policy.

    It seems dedicated to producing their ethical antithesis which is probably why America can’t have nice things.

    Well, that in combination with Americans’ recognition of the frailties of their own institutions. We don’t trust big government or big companies the way our European cousins too. And with good reason.

  • Guarneri Link

    “People who are laid off need help, and newly created jobs are not necessarily perfect substitutes for lost jobs. The government needs to effectively manage inevitable change for the greater good.”

    Great. Government Retail U., where they teach the finer points of selling shirts with a Polo pony on them, vs a whale, vs a swordfish vs a gator. Next they will be setting production schedules. Then of course we need the politically correct mix of lesbian clothes, transgender clothes, goomba silk shirts, baggy shorts…..all made in environmentally friendly environments. The impact study is due out in 2020….

    I can’t think of a more generic, transferable employee than found in the various classes of retail. The bar is set pretty low. If someone wants a program to help electricians adapt to evolving smart home controls I guess I get that. Shoes vs pants, not so much.

    Demographic spending patterns, overbuilding, wage growth patterns and changing technology have all combined to require adjustment in the retailing industry. It’s not unique or novel. Let it run its course.

    By the way, there is an interesting graphic at ZH in which a histogram of income frequency by level for 1971 is then advanced to 2015. If you look at it you will see you can’t do a rigorous quantitative evaluation. However, two things jumped out at me. Yes, there was the obvious large jump in the highest income bar. But we are talking about small numbers of people here. More interesting to me was the general “surge,” like a wave, from lower end of the graphic to the higher end. Read: a whole lot of people in the lower half saw income decline; a whole lot either moved to the higher end or those already there saw increases. By eyeball they might be like numbers.

    Much more interesting to me from a policy perspective than the reflexive kill the rich and banal financialization is the root of all evil commentary so often seen.

  • I have no problem with saying they need help. I have a problem with saying that they need federal help.

  • steve Link

    “But we are talking about small numbers of people here. ”

    But lots and lots of money. The wealthiest can now afford to finance their own think tanks, control their own media and finance campaigns all at once, and they do. They even have one of their own running the government.

    Steve

  • Not to defend Trump but I fail to see any signs of class consciousness among the very wealthy. The upper middle class (incomes form $120,000 to $300,000), yes.

  • steve Link

    “Not to defend Trump but I fail to see any signs of class consciousness among the very wealthy.”

    I see lots of signs of policy being crafted to benefit them while also, sometimes, harming other classes.

    Steve

  • Ah. You’re identifying self-interest:

    I see lots of signs of policy being crafted to benefit them

    with class-consciousness:

    one of their own

    I think that for every billionaire who supports Trump you’ll find five who hate him.

  • Steve Link

    Of the 5 who hate him you will find 3 who support his tax policies and 4.5 who support his basic idea that legislation should help them. They will only be in opposition because the specifics of any particular policy might help some other billionaires while harming them. (He sure didn’t have any trouble finding wealthy folk to work in his cabinet.)

    Steve

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