Cornerstone Capital: Robots, automation could leave 6 million retail workers stranded

More than 7.5 million U.S. workers are at high risk of becoming “stranded workers” because of computerization, including some 6 million retail jobs that could be replaced due to the rapid rise and globalization of automation technologies, according to a new study by the Cornerstone Capital Group.

The recent report says the impact of significant reductions in retail workers may mirror the impact of manufacturing job losses that have taken place over the past decade.

“Retail sales at brick-and-mortar stores, as well as margins on those sales, are increasingly constrained as consumers shift to online shopping,” noted the report from New York City-based Cornerstone. “At the same time, many parts of the country are experiencing upward structural wage pressure as concerns about income inequality are gaining political traction.”

The report highlights that major retailers, including Macy’s, J.C. Penney, Kohl’s and Wal-Mart, have collectively closed hundreds of stores over the last few years in attempts to stem losses from unprofitable stores.

“These headwinds are pushing retailers to rethink the traditional retail business model,” the report says.

In the executive summary of the report, Cornerstone analysts Michael Shavel, Sebastian Vanderzeil and Emma Currier, said the retail landscape is experiencing unprecedented change in the face of disruptive forces, one of the most recent and powerful being the rapid rise of automation in the sector.

Highlighting the World Economic Forum’s prediction that 30%-50% of retail jobs are at risk once known automation technologies are fully incorporated, the Cornerstone forecasters say this would result in the loss of about 6 million retail jobs and represents a greater percentage reduction than the manufacturing industry experienced. Cornerstone’s analysis also suggests that more than 7.5 million jobs are at high risk of computerization. A large proportion of the human capital represented by the retail workforce is therefore “at risk of becoming stranded workers,” the report says.

RETAIL LOSSES COULD MIRROR MANUFACTURING DECLINE
The eye-opening report from the Wall Street financial services firm also points to Bureau of Labor and Statistics data that retail employment exceeded total manufacturing employment in 2002, and now sits at about 16 million workers. Total manufacturing employment, which peaked in 1979 at approximately 19 million workers, has fallen to 12 million workers.

“The repercussions of manufacturing’s decline, which was driven by automation and globalization, have been felt at the local and national levels,” the report stated. “For example, certain areas of the U.S. that were once manufacturing hubs have experienced rising poverty, declining populations, and erosion of political trust.”

Cornerstone further predicts that the impact of significant reductions in retail workers may mirror the impact of manufacturing job losses. Retail sales at brick-and-mortar stores, as well as margins on those sales, are increasingly constrained as consumers shift to online shopping, the report says.

“Retailers are investing in technology to build out their omni-channel platforms. In some cases, technology is complementing labor by providing a better customer experience,” Cornerstone says. “Indeed, this report argues that companies which use technology to support their workers are likely to benefit from long-term productivity gains. However, technology also has the potential to automate part of the sales process and render a range of jobs redundant. Taken together, store closures and automation technology have the potential to accelerate job losses in retail, an industry that employs approximately 10% of the total U.S. labor force.”

DEPARTMENT STORE BLUES
The Cornerstone report comes as several major retailers in real-time are struggling to adopt digital and mobile technology that keeps pace with online rivals that are profiting from consumer’s migration to e-commerce shopping portals. Last week Dillard’s, Macy’s and Kohl’s all missed first quarter earnings targets, citing online competition and declining sales at brick-and-mortar store locations.

Macy’s stock sank to its lowest level since 2011 after the Cincinnati-based department store operator reported sales and profits were off target in the first quarter as more shoppers flee malls for cheaper offerings online and with discount rivals such as T.J. Maxx. The company announced plans to close 100 stores earlier this year. J.C. Penney Company and Sears Holdings Corp., two other department store chains that are mostly tied to mall assets, also have announced major downsizing efforts in the next few months. In March, J.C. Penney announced plans to close 138 stores and cut over 5,000 jobs across the U.S. Those restructuring efforts included two Arkansas locations in Benton and Blytheville.

On Sunday, Sears updated its restructuring program that included the closure of 108 Kmart and 42 of its namesake stores in order to realize cost savings of up $1.25 billion. The Hoffman Estate, Ill.-based retail operator also recently sold off its Craftsman brand for $900 million and has received bids in excess of $700 million for over 60 separate real estate assets.

Bentonville-based Wal-Mart Stores has also cut close to 1,000 jobs in Northwest Arkansas this calendar year. Those jobs came from several departments such as replenishment, Human Resources, Sam’s Club, technology and international positions in Bentonville. Wal-Mart has also increased its spending on boosting wages, enhanced training academies, online fulfillment capacity and enhanced technology capabilities to the tune of more than $4 billion in the past two years. The business restructuring is likely to continue as the retail sector grapples with omni-channel demands, analysts say.

AMAZON EFFECT
Cornerstone said its research identifies two key factors driving the automation conversation. First, e-commerce has grown significantly over the last five years and now accounts for more than 8% of total U.S. retail sales.

“Amazon has been a dominant force in e-commerce for years, and the company accounted for 43% of all online sales in 2016,” the report states. “While the consumer benefits from lower prices and greater price transparency, Amazon’s success is pressuring retailer profit margins as they fight to maintain market share and keep prices low to remain competitive.”

Second, the report said a growing focus on income inequality and regulatory-driven minimum wage changes are a source of increasing wage pressure. Retail employs about 10% of the U.S. labor force, and research finds that retail workers are disproportionately represented among recipients of public assistance.

“Retailers have been increasing wages recently due to a tighter labor market, but retail faces a structural issue of increasing pressure for minimum wage hikes at the local and state level,” the Cornerstone researchers said. “Taken together, retailers are facing structural price and cost issues that impact profitability and create meaningful long-term uncertainty. These headwinds will likely increase the industry’s propensity to automate, which would have significant impacts on existing labor.”

The Cornerstone report also looks at automation that retailers are now adopting, including mobile devices and proximity beacons, self- and automated-checkout, RFID technology, workforce and task management software, robots, smart tags and digital kiosks.

The report also assesses how top retailers, including Amazon, Walmart, Target, Costco and Dollar General, are adapting to advancements in technology and automation.  The research highlights wage pressure and the “Amazon Effect” as Key drivers of retail automation.

“Company announcements of store closures, labor force cuts, and technology investments are among the largest in recent memory. Investors should focus on key questions to better understand how a company is thinking about automation and labor from a strategic standpoint,” the report concludes.

Link here for the lengthy PDF report.