In the 1940s, Austrian economist Joseph Schumpeter proposed the idea of “creative destruction” to describe the collapse of an established order and the innovation and entrepreneurship that replaced it with something new. That was well before the internet existed, but the idea is an apt framing for the way e-commerce and companies such as Amazon have changed retail.
Under a wave of bankruptcies and store closures, the old world of retail is crumbling, supplanted by one that’s increasingly digital as well as physical. The consequences are more significant than just which company’s quarterly sales are up or who has a hot stock. How we shop is changing, and that’s affecting how we work.
The shift is more pronounced in some countries than others so far, but it’s happening all over.
Brick-and-mortar retailers have registered the effects in very different ways. In the US, for instance, some types of stores are thriving, such as cosmetic and beauty supply chains that have benefited from shoppers seeing trends online but wanting to try products in stores.
Others, such as those selling books—the category that launched Amazon—haven’t fared so well.
Retail has historically been an important source of US employment. At its high point in 1987, the industry employed 12.2% of the US population, according to US Bureau of Labor Statistics. Now just 10.4% of the population works in retail. For decades the number of total jobs it offered was still increasing overall as the US population grew, but more recently it has slumped. From 2016 to 2019, the number of people working in retail fell by about 150,000 people to slightly less than 15.8 million. The trend looks set to continue.
The weakness in retail stands out given the current strength of the job market overall and how an industry such as health care has grown. It’s worth noting, though, the tally of retail jobs doesn’t include employment in the warehouses and fulfillment centers Amazon and other online retailers have built. Michael Mandel, chief economic strategist at the Progressive Policy Institute, a Washington D.C. think tank, has argued (pdf) e-commerce is a net job creator in the US when you take into account those additional jobs. A separate analysis by Morgan Stanley focused specifically on Amazon arrived at a similar conclusion, finding US cities with Amazon fulfillment centers saw job growth above the national average.
One counterargument, however, contends jobs in fulfillment centers are more vulnerable to being automated, meaning the gains could be temporary. And there have been numerous allegations of labor abuses in Amazon’s warehouses.
Within retail, not all jobs have suffered. The number of employees in food and beverage, to take one example, is still rising. But the gains in some areas are offset by declines in others, such as clothing stores.
These trends aren’t limited to the US. Most countries providing data to the Organization for Economic Co-operation and Development have recorded drops in their share of the labor force working in wholesale or retail. (The US doesn’t share data with the OECD).
Under Schumpeter’s theory, destruction clears room for new creation. While e-commerce may create more jobs around retail, one recent analysis by Euler Hermes, a credit insurance and risk analysis firm, compared the jobs created in e-commerce specifically against those lost in retail. It argued creation in the former isn’t keeping up with destruction in the latter. Among the reasons were that e-commerce requires fewer employees, it has eroded retail’s profitability, putting a crunch on stores whose productivity was already down as more shoppers bought online, and it tends to be a “winner-take-most” business dominated by a small number of companies.
E-commerce isn’t the sole reason for retail’s problems, the firm acknowledged. Changes in consumer behavior, such as declining readership of books and shoppers opting for digital copies over physical ones, have played their part too. Still, it said, e-commerce had an indisputable impact, and warned some segments of retail in countries such as Germany, France, and the UK are experiencing similar effects.
Retail has been reshaped by e-commerce and giants such as Amazon, and the changes are only set to keep coming.