Despite Modest Gains, Retail Labor Risks Persist

While consumer confidence and overall sales continue to slowly improve, retail executives continue to grapple with industry pressures. Amid tentative growth, there remain serious concerns about risks in the retail labor market, and these concerns have been growing.

In May 2012, our annual RiskFactor Report indicated that 78 percent of retailers cited risks related to labor as threats to business; our May 2013 Report shows a spike in that statistic—up to 86 percent. This mounting number points to real worries, despite the fact that the U.S. job market is chugging along and retail sales are demonstrating considerable promise.

During May alone, retail trade employment increased by 28,000 jobs, and the industry has added an average of 20,000 jobs per month over the past 12 months, according to the Bureau of Labor Statistics. Relatively speaking, the total nonfarm payroll employment increase for May was roughly 175,000 jobs. Retail itself has also shown promising results since the beginning of the year, with 5 percent growth in April same-store sales, and an overall sales increase of 0.1 percent. Initial estimates for May contain similar figures, with Reuters reporting 4.8 percent growth in same-store sales. Of course, while these numbers don’t indicate blockbuster growth, they do imply that the retail industry is continuing to stabilize along with the economy as a whole.

The question therefore remains, why—given such stable predictions and performance—are labor pressures rising? Taking a step back, retail labor has traditionally proven mercurial: we’ve seen perceptions of risk fluctuate as the market has retracted and rebounded, and the turnover rate among retail employees is high. To understand current pressures, however, consider these crucial external factors:
  1. The Affordable Care Act: With such a large and dynamic workforce, retailers are increasingly worried about labor cost spikes once the ACA is fully implemented in 2014. The number of retailers citing healthcare costs as a risk more than doubled this year (42 percent from 20 percent), and many remain uncertain about how to economically extend health insurance for newly-qualified employees.
  2. Modest growth = greater competition: A slightly-improved job market translates to greater competition for new employees. Retailers must strike a difficult balance between offering incentives to potential employees and managing the steady rise in benefit costs.
  3. Supply-side intangibles: Following a number of tragic and high-profile labor incidents in manufacturing centers such as Bangladesh, retailers are faced with costly and controversial questions about the evolution of global labor standards. Possible cost increases and questions over the extent of legal liability throughout the global supply chain continue to raise doubts and risk.
For the time being, risks in retail labor will likely remain high—at the very least until the consequences of these external forces become clearer.

What labor concerns keep you up at night?