Here's Why U.S. Retail Job Cuts Signal the Coming Economic Crisis Lombardi Letter 2017-06-21 14:54:13 U.S. job cutsjob cutsretail job cutsretail sectorshopping mallseconomic crisisonline shoppingAmazon.comHudson's BaySakseconomic crisis Retail job cuts show that the retail sector in the United States has reached the terminal phase of its slow demise, and its disease is online shopping. 2017,News,U.S. Economy https://www.lombardiletter.com/wp-content/uploads/2017/06/economic-crisis-150x150.jpg

Here’s Why U.S. Retail Job Cuts Signal the Coming Economic Crisis

U.S. Economy - By |
economic crisis

U.S. Retail Job Cuts Are First Salvo of Economic Crisis

Hudson’s Bay Co (TSE:HBC) announced last week that it will be cutting 2,000 jobs in North America.

Hudson’s Bay? Never heard of it, you say? You might have heard of—and maybe even visited—a little retail outfit called “Saks Fifth Avenue.” Hudson’s Bay owns Saks Inc (NYSE:SKS), and most of the company’s job cuts are in the United States.

The stock market might still be up, but these layoffs are yet another symptom of the coming economic crisis.

The large retailer said that its job cuts are expected to save $350.0 million a year, as part of a restructuring plan to last until the end of its 2018 fiscal year. Layoffs are bad news for Saks employees, but great news for investors, supposedly. Management will make the organization great again; more efficient and buoyant with profits. (Source: “Hudson’s Bay Company Layoffs To Affect 2,000,” Huffington Post, June 9, 2017.)

The job cuts will be from the headquarters to the store floors, affecting all store brands and representing approximately four per cent of the company’s workforce in Canada and the United States. To reassure consumers (not that they need it, since they’re staying away in droves), Hudson’s Bay says the job cuts will make the company more agile as it focuses on its online business. (Source: Ibid.)

But how long can this last? Eventually Hudson’s Bay will run out of ways to rationalize its “Saks” stores.

The layoffs were announced as Hudson’s Bay announced its first-quarter financial results. The retailer posted a net loss of $221.0 million, which is more than double the $97.0 million loss reported for the same period last year. The company’s retail sales were about $3.2 billion; that’s down three percent from the prior year. It may not seem like much percentage-wise, but it reflects a phenomenon that cannot be reversed. (Source: Ibid.)

It may be true—as the company said in justifying its decision—that retail saturation in the United States is a bigger problem than it is in Canada. The retail sector in the United States has reached the terminal phase of its slow demise, and its disease is online shopping. It may have a few years left, but its future is marked, like the man wearing the dark hat in a Spaghetti Western movie during the final duel scene.

Some retailers will adapt, by expanding their online presence and the range of conveniences that shoppers can use from their desktops, tablets, and smartphones. Hudson’s Bay acknowledges that it needs to cut costs to confront the various challenges facing the retail sector. Several stores have shut their doors due to the trend of online shopping. Even clothing shopping has gained popularity in online outlets, as apps and features allow buyers to try on items virtually.

Even luxury retailers like Saks and Nordstrom, Inc. (NYSE:JWN), which have the potential for higher profits (due to bigger margins on items) are making a major shift from the opulence of their physical stores to the online shop. (Source: “Nordstrom to Explore Deal to Go Private as Retail Sector Reels,” The New York Times, June 8, 2017.)

Shopping’s Slow Demise

The shopping mall on the outskirts of the city is on the verge of extinction in North America. Many have closed, and few new ones are opening. The new ones tend to be outlet malls, where manufacturers get rid of excess stock and appeal to lower-budget consumers with big-name brands. But outlet malls are also heading for a demise, which is setting the stage for an economic crisis.

It is estimated that 15% of U.S. shopping malls will shut down within the next 10 years. (Source: “American malls are dying faster than you think — and it’s about to get even worse,” Business Insider, August 31, 2016.)

It’s more than just a matter of shopping habits. There are demographic factors at play. There is no traditional downtown in many cities, and the shopping mall that had replaced that concept in the 1970s and 1980s has started to come under heavy pressure. The mall, like the traditional town, is surviving on overtime. The retail crisis more generally addresses the future of shopping, as consumers look online for convenience, lower prices, and more variety. But the crisis also describes an urban shift.

The move away from the brick-and-mortar store raises the question that few have dared ask, because we know and fear the answer. Is the end of shopping going to kill the U.S. economy?

This is a veritable crisis of behavior; that’s what makes it so scary. It’s an evolution process and, like all evolutions and transformations, it doesn’t take any prisoners. The world is changing, and the way we get our stuff will change with it. Consumers no longer have the same wants and needs. Some are looking for sustainability and idealism while others seek beauty and luxury. The sheer variety of choices and types of goods that people want makes the online sector much better at meeting the modern consumer’s needs.

The giants of the Internet, such as Amazon.com, Inc. (NASDAQ:AMZN), eBay Inc (NASDAQ:EBAY), and Alibaba Group Holding Ltd (NYSE:BABA) are the new shopping stars. They’re pulling the carpet out from under the well-established actors. Even if the major long-established retailers build more appealing online shops, it’s tough to compete with these new entities. In time, they too will fade, however, because consumers’ habits are changing fast and the economy faces all matter of uncertainty.

Millennials, for example, are not buying cars, they’re renting them (or not driving); they’re also more willing to pay for experiences (travel, concerts, restaurants) than they are goods.

There’s also that nagging problem of consumers having less purchasing power. The middle class no longer has the means to spend. Thus, the demise of the mall and the evolution of the shopping experience will accelerate job cuts and put the economy under more pressure.

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