The Supply Side: Retail workforce remains tight despite recent job gains, layoffs

While the U.S. economy remains relatively strong, the retail sector is a mixed bag with a tight workforce despite the 50,100 retail jobs added in February against a growing number of layoffs also recently reported in the industry.

The rate of retail workers quitting their jobs hit 4.1% in January, according to the U.S. Department of Labor (DOL) data. The last time retail’s quit rate veered into that territory was in April 2022. Conversely, the rate of quitting outside of retail has dropped and is approaching 2.3%, the 2019 level, according to the DOL.

A recent report from McKinsey & Co. found that nearly half of the frontline retail employees and two-thirds of managers said they are considering job changes in the next few months.

“High attrition in retail is nothing new. Annual employee turnover among frontline retail workers has been at least 60% for a long time,” said David Fuller, co-author of the McKinsey report.

The report noted that no other U.S. industry had been more affected by the “Great Attrition” than retail, as it employs more people than any other sector. McKinsey reports that retail employs roughly 20% of the U.S. workforce, or approximately 31 million people, and suffers from the highest turnover, with U.S. quit rates double that of any other employment sector.

“Retailers regularly face the challenge of replacing more than half of their store staff every year. But that challenge has grown amid record inflation and a continuing global pandemic: half of frontline retail employees are considering leaving their jobs in the next few months alone. Perhaps worse, 63% of frontline retail managers are thinking about quitting in the near future. And many of them do not want to work in retail anymore,” the report notes.

With a tight labor pool overall, retailers are not only competing with each other for frontline workers, but now they are competing with other employment sectors and nontraditional work options in the gig economy. The retail industry has two job openings for every person looking.

The National Retail Federation admits 2022 proved to be an ever-changing and complex environment for retailers with inflation and supply chain challenges, fears of a looming recession and persisting labor market challenges. Even as the labor market has stabilized since the “Great Resignation” peak in April 2022, NRF said the demand for talent continues to be a key priority for many retailers.

Retailers from Best Buy to Walmart have resorted to hoarding workers by appeasing them with higher wages. Investments in wages are necessary for the talent war, according to McKinsey. Kroger has announced it will spend $770 million on higher wages this year, the first significant pay hike since 2018. CEO Rodney Mullen said the company’s average hourly rate is now more than $18 following a 6% increase. Best Buy raised hourly pay by 25% over the past three years.

Walmart said it would increase the minimum wage to $14 per hour in January, $2 more than the previous starting pay. Walmart said its average hourly pay rose to $17.50 per hour. Lowe’s and Home Depot also spent big with a minimum wage of $15 and higher employee compensation across the store levels late last year.

Despite the spending on higher wages, another report from Beqom found that 53% of retail workers are becoming more aware of pay gaps in age across the industry. The March report from Beqom also found that 45.5% think there are issues with racial pay gaps. In other findings, 46% of retail workers believe their place of work has a gender pay gap problem.

More than half (58%) of employees in the survey said they asked their employer or manager for a raise in the last year. Of those who asked for a raise last year, 34% received a raise below their expectations. One-quarter of the respondents said they were happy with their salary and did not ask for a raise, and 22% said they didn’t have the concern of a recession that kept them from asking.

“To bridge pay gaps in the workplace, employers must proactively build pay equity and increase transparency within their organization,” said Tanya Jansen, co-founder of Beqom. “When employers make a conscious effort to boost pay equity and provide more transparency around pay decisions with their staff and candidates, they help to build a level of trust that contributes to a feeling and reality of fair pay.”

While most retailers are scrambling for workers, others are cutting their workforces due to softer sales amid changing consumer shopping behaviors since the pandemic ended. In a cost-cutting measure, Neiman Marcus Group recently announced plans to lay off about 5% of its 10,000 employees, or roughly 500 employees. Off-price retailer Tuesday Morning re-entered Chapter 11 Bankruptcy in February and planned to close 265 stores, half its store locations. The closings could amount to around 1,100 job losses.

Qurate Retail Group, the owner of brands HSN and QVC, recently cut about 12% of its headcount, or 400 jobs, amid falling revenue. Amazon announced 18,000 layoffs in January, most of which were in its retail division. Walmart’s tech division also announced the closure of three technology hubs that will result in layoffs for those who chose not to relocate to Bentonville or San Bruno, Calif. The retail giant also closed eight non-performing stores in early 2023.

Walmart CEO Doug McMillon has said the world changed following the COVID-19 pandemic, and businesses must continually adapt to the changing consumer behaviors. The change is why Walmart has focused more on other revenue from ancillary businesses like Fintech, GoLocal delivery, advertising and health services.

According to Cathy Hotka, founder of Hotka & Associates, a retail marketing firm, those post-pandemic changes include worker attitudes.

“Frontline retail workers want and need more support and will get it from companies that value their professionalism and service,” Hotka said.

Retail strategist and consultant Rich Kizer said the muddled labor mess is a challenging fix.

“Higher pay has always been the megaphone for shouting disagreements,” he said. “It seems that the disgruntled noise only energizes the problem as it takes on a life of its own. We are in a fix. I think the path out begins when management starts asking questions daily of associates to give them a sense of more importance, ownership and control. My guess is there’s not much of that in stores today. There should be regular group meetings with staff members about what is happening in their store area.

“Utilizing their ideas could bolster attitudes and create higher performance levels with more pride in their jobs and better retention levels.”

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.