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Amazon, Unemployment and the State of Retail

| December 18, 2018
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The Retail industry will likely have a challenging time attracting employees

Since early October of 2018, a few interesting topics were widely circulated among the press and each of them received quite a bit of coverage. But taken together – and given that we’re in the busy holiday shopping season – it does make one wonder how the Retail industry will fare in 2018 and beyond. Let’s explore three different threads.

Amazon and the Minimum Wage

On Tuesday, October 2nd, Amazon announced that it was raising the minimum wage for all U.S. employees to $15, effective November.

According to a release from Amazon, the new minimum wage will benefit more than 250,000 Amazon employees — including part-time and temporary employees — as well as another 100,000 seasonal employees, the company said. Some employees who already make $15 per hour will also see a pay increase.

For reference, the minimum wage is determined by both state and Federal labor laws and the current federal minimum wage is $7.25.

Earnings Growth for Retailers: Amazon

Research-firm FactSet tracks expectations for earnings growth for each of the S&P 500 companies. These S&P 500 companies – there are actually 505 companies, but that’s another story – are categorized into 11 sectors, 24 Industry Groups, 69 Industries and 158 Sub-Industries. And within the “Consumer Staples” sector is the “Food & Staples Retailing” Industry Group – which is shortened to just Retail.

Well on November 23rd, FactSet released a research report with the following headline:

“ accounts for over 50% of Expected Earnings Growth for S&P 500 Retailers in Q4.”

Not only is expected to report the highest earnings growth and be the largest contributor to earnings growth among retailers, but if was excluded, the estimated earnings growth would fall from 15.0% to 6.8%.

Employment Situation Report

On Friday, December 7th, the Department of Labor released the Employment Situation report that said:

  • Total nonfarm payroll employment increased by 155,000 in November
  • The unemployment rate remained unchanged at 3.7 percent
  • Retail trade employment changed little in November (+18,000). Job growth occurred in general merchandise stores (+39,000) and miscellaneous store retailers (+10,000). These gains were offset, in part, by declines in clothing and clothing accessories stores  (-14,000); electronics and appliance stores    (-11,000); and sporting goods, hobby, and book stores (-11,000)

What Does This All Mean?

Let’s summarize:

  1. com raises its minimum wage to more than double the Federal minimum wage.
  2. com accounts for about half of the earnings growth of retailers within the S&P 500.
  3. Unemployment is at a 50-year low.

Taken together, it makes one wonder if Retailers will have a challenging time attracting workers at the busiest time of the year. And let’s add two more little-known stats:

  • Amazon has about 600,000 employees worldwide
  • Walmart employs an incredible 2.1 million people worldwide, including 1.4 million in the U.S. (yea, that’s 1% of the working U.S. population)

Traditional retailers might have a challenging time this year and for years to come.

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