Retailers Labor Risks Surge Despite Promising Job Market

Slow and steady is the best way to characterize the retail industry’s recent growth: Over the past three months, overall sales have continued to edge up slightly, and consumer confidence has kept pace with modest gains, reaching its highest point in June since January 2008. With these reticent indications of growth, retail executives remain cognizant of various pressures in the industry, especially around the retail labor market.

Findings from our annual Retail Risk Factor Report point to a notable trend over the last several years. In May 2012, the report found that 78 percent of retailers cited risks related to labor; that number rose to 86 percent in 2013, and then jumped again to a resounding 94 percent in 2014. Labor is now one of the top five risks noted by retailers in our report, making it clear that executives are considerably concerned about ongoing risks related to both their own employees, as well as the labor market overall.

However, the U.S. labor market appears to be building on its recent, positive momentum, and the last five months have yielded the most robust growth since early 2006. June’s jobs report beat analysts’ estimates across the board, with 288,000 nonfarm payroll jobs added, pushing the U.S. unemployment rate down to 6.1%, its lowest level since September 2008. The retail industry’s 40,000 new positions last month, in particular, helped contribute to this solid growth, as more people are finding jobs while the workforce size remains reasonably constant.

Still, this can be a double-edged sword for retailers: Lower unemployment levels should help contribute to improved consumer spending in the months ahead, but they may also impact the Fed’s discussions around further tightening monetary policy, which would boost interest rates and potentially stymie spending. Of course, an improving job market also means a dwindling pool of qualified candidates, which will heighten retailers’ competition for workers and possibly increase turnover.

In addition to these macro factors, be sure to keep your eye on these four key developments as they continue to unfold in the weeks and months ahead:
  1. Minimum wage: The debate around raising the federal minimum wage to $10.10 has resulted in a political stalemate, as well as protests by unions and employees. As The Wall Street Journal reports, an increase in the wage rate could impact hiring plans across the industry. However, several retailers, including Ikea, have already raised their minimum hourly wage to over $10, adding pressure for other major companies to follow suit.
  2. Additional labor costs: As the National Retail Federation notes, given the nature of the U.S. retail workforce, compliance with new Affordable Care Act provisions can be especially complicated for retailers, and many are still grappling with how to fully absorb added benefit costs. A full 57 percent of retailers cited healthcare and benefit costs as a risk this year, up from 20 percent in 2012.
  3. Corner office concerns: Multiple large retailers are currently in the hunt for a new CEO, and as we’ve discussed before, a new breed of executive leader is in high demand within the industry: One with both industry acumen and technological savvy. Nearly four out of five retailers noted attracting and retaining key personnel as a top risk this year, and amid intense competition, we expect this concern will stay high.
  4. Supply chain disruptions: Negotiations are ongoing between West Coast longshore workers and port operators, and retailers are doing everything they can to minimize the fallout of a potentially massive supply chain disruption if, in fact, the talks fall through and a strike or lockout occurs.
Which labor risks are on your company’s radar?