Retail hiring signals that change may be afoot

Friday, January 9, 2009

The retail industry is expected to be heavy hit as consumers retrench. It is still to early to tell whether consumers have increased saving – reducing consumption patterns - by choice or by force; but if consumption shifting to be a smaller share of GDP, then the consumer retail industry will shrink. It's already started.

Over the past eight years, the hiring trends seem to have changed slightly in the retail clothing industry (retail trade, clothing and clothing accessories on the BLS nonfarm payroll report).

The chart illustrates the non-seasonal patterns in the payroll fluctuations in clothing and clothing accessories industry (Macy’s would fit here). Firms typically hire a lot of seasonal workers starting in October and through December, but then fire the seasonal workers in January and February. November’s report did show hiring, but by much less than that in 2005 and 2006.

But compared to the first half of the decade, November 2008 would have been normal.

The chart illustrates the same payroll fluctuation, but comparing 2008 to the first half of the decade, 2000-2004. Relative to the 2005-2008 period, the hiring in the clothing and clothing accessories industry was quite a bit less volatile over 2000-2004. There was a smaller fluctuation in hiring and firing around the Holiday months (less seasonal variatio). Furthermore, the hiring pattern of November 2008 would have looked “normal” against this backdrop.

It is likely that the industry has simply gotton too big over the holiday months. Consumers don’t need to give so much, nor spend so much, during the winter months. Isn’t it the thought that counts? Going forward, if consumers spend more within their means, then the clothing industry is going to scale back over the holidays; this will likely lead to further consolidation or liquidations within retail.

This is not going to be the last. From Yahoo Finance:

Department-store operator Macy's Inc. said Thursday it will close 11 underperforming stores in nine states -- affecting 960 employees -- and lowered its forecast for the fourth quarter after one of the weakest holiday seasons in years.

Stores slated to close include locations in Los Angeles, West Palm Beach, Fla., Nashville, Tenn., and St. Louis, among others. Cincinnati-based Macy's Inc. says the closures will cost about $65 million, most of which will be booked in the 2008 fourth quarter.The labor market is weak, and getting weaker.
And although the weekly numbers are bouncing around, continued insurance claims continue to surge:
Unemployment benefit rolls swelled to a 26-year high in the last week of December, data showed on Thursday, while retailers, including market leader Wal-Mart, reported poor sales as the year-long economic slump deepened.The Labor Department said the number of people still on jobless rolls after drawing an initial week of aid jumped 101,000 to 4.61 million in the week ended December 27, the latest for which the data is available.
And holiday sales could not have been worse, as bad news flows in from the retail sector:
Despite the most aggressive holiday price slashing in memory, shoppers largely remained stingy about spending their cash, spurring the biggest December decline in U.S. retail sales since record-keeping began nearly 40 years ago.

Sales slid 1.7 percent compared with December 2007, according to a report issued yesterday by the International Council of Shopping Centers, the most it's ever dropped since researchers began tracking the data in 1970. The report is based on sales at 36 chain stores that have been open at least a year.

Department stores, specialty apparel shops and even wholesale clubs were hit. December sales decreased 8 percent at J.C. Penney, 24 percent at Abercrombie & Fitch and 2 percent at Costco, compared with the year before. Macy's sales dropped 13 percent in November and fell another 4 percent in December.

Same-store sales at Wal-Mart did increase in the month compared with December 2007, but the 1.7 percent rise was less than expected at a time when the giant discounter was poised to become the default choice for shoppers in search of holiday bargains. The result prompted the company to reduce its profit estimates for 2008.
RW: The clothing industry has already cut 3% of its payroll since December 2007 (not including December report). Based on the unemployment claims report and severely weak sales figures, there will probably be some heavy casualties going forward.

Rebecca Wilder


Janie January 9, 2009 at 8:40 AM  

Nice comparison on the labor front, especially 2008 to 2000/4! What would it look like if the sales numbers were compared in the same way? How would 2008 stack up to 2004 in comparable dollars? The system got so used to mega-growth that the reality of year-to-year just doesn't scan.

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