Threat to retail jobs escalates as Amazon shareholders cash in 20 years after IPO
Online retail giant Amazon floated on the stock market 20 years ago this week. To say it would have made a good investment punt at the time is a gross understatement.
If you invested $100 in Amazon shares back in 1997, your stake would be worth $64,000 today. A $5,000 investment 20 years ago would be worth over $3m today.
Amazon has been at the forefront of a retailing revolution. The fallout from the success of the retail giant and other online shopping empires continues.
Online retailing poses a massive threat to conventional bricks and mortar retailers and it is inevitable that in the years to come major job losses will occur.
Of course Amazon and other online retailers create jobs and facilitate job creation in logistics, IT and delivery systems. They have also been incredibly innovative. But some estimates suggest that only one ecommerce job is created for every three retail jobs lost.
The challenges from online retailing have led to jobs carnage in the US. Since Donald Trump took over as president, 89,000 retail sector jobs have been lost.
It isn't Mr Trump's fault (on this occasion) but it is down to an oversupply of retailing malls in middle America as well as the rise of online shopping.
Credit Suisse recently estimated that up to one fifth of US retail space is likely to close in the coming years. The closures are being led by big retail names like Macy's, Sears and JC Penny, but often in their second tier locations.
Even the world's biggest retail chain, Walmart, has not been immune. It is closing 154 stores after experiencing its first year of revenue decline since 1980.
The closure of 154 stores is small beer for Walmart and represents less than 1pc of its shop floor space. However, it will have a large impact in the smaller towns in which stores close, many of which lost their own local shops when Walmart arrived in town a couple of decades ago.
Rather than paint the online retailers as the bad guys, they are in fact simply winning the commercial battle, providing an innovative service at a competitive price.
However, the scale of job losses in the US raises a bigger question about the impact technology will have on jobs in general and in retailing in particular.
Certainly, America seems to have been saturated with second and third tier shopping malls, and that oversupply is affecting the rate of jobs carnage there.
Some have estimated that America could lose one-third of its 16m jobs in retail by the end of President Trump's term. The obvious question is what will all those people do?
Many are going into home health help and logistics jobs but it seems inevitable that without the correct upskilling and training, many will not find work at all. Controversy over pay and conditions of online giants like Amazon suggests they won't always find a better or equal job.
This poses its own challenges for the Trump administration which if anything is likely to make things worse by talking of implementing an import tax which would hit the performance of retailers even more.
But this isn't just an American problem or a retailing issue for the future. There is a tendency to use retail sales figures only as a barometer of economic confidence. The associated jobs figures are rarely highlighted.
It seems unimaginable that Ireland will not be impacted in some way by this same drive towards online retailing. Figures for online shopping in Ireland are a little sketchy.
A survey published in 2014 said that Irish online shoppers were spending €4bn per year buying from retailers in other countries. Another survey published in 2015 said Irish shoppers will spend around €2bn with foreign online retailers by 2016.
And a survey published in September 2016 said Irish shoppers will shell out €14.1bn online by 2020 with around half of that going to retailers outside the country.
Either the figures are somewhat muddled or the growth in just a couple of years has been exponential. The pattern is clear and it will have repercussions further down the road.
At the moment, on a macro level the situation looks pretty bright for retailing and jobs in the sector in Ireland.
Ibec's retailing group, Retail Ireland pointed out in its monitor for Q1 2017 how the economy is growing, consumer confidence is rising and unemployment is falling.
But Retail Ireland also said, if you scratch below the surface a pattern of significant deflationary pressures emerges with heavy discounting in most categories. "Of the 32 major retail categories tracked by the CSO, 25 saw price deflation in March when compared to the same period in 2016", Retail Ireland said.
So there is deep discounting with retailers afraid to put up prices because they might lose business. What's wrong with that? It is good for consumers and good for competitiveness in the economy.
However, part of that price competition is driven by the rise of online. If retailers have to keep cutting prices to stay afloat, they will have to cut costs and that might mean cutting jobs further down the road.
Thankfully, Irish consumers love to shop, both online and in stores and as the economy continues to grow, the retailer sector is hiring more staff, not letting them go.
Employment numbers in retailing have risen in the last two years, but not as fast as sales growth. This suggests that margins remain tight for retailers and they are trying to find efficiencies.
Some parts of retailing in Ireland remain buoyant. Even in the US where there is jobs carnage, 'Class A' retail malls continue to do very well. In Ireland, there is a stark contrast between the demand for floor space on Grafton Street versus small town main street.
Irish retailers will increasingly use new technology available to reduce their cost base and stay relevant which could also have an impact on total job numbers in the future.
Online giants like Amazon will continue to expand and utilise other new technologies to improve their efficiency. There is clearly room for both but one is winning the mass market battle.
One option is for traditional retailers to raise their online game. Some are doing this effectively, but smaller players are struggling. Equally, brands are increasingly looking to move online.
Yet of all of the growth in ecommerce sales last year, 53pc of it went to Amazon, with the rest of the industry sharing the other 47pc.
Just before it floated in 1997, Amazon had sales of $15.8m. Twenty years later, sales now amount to $136bn. Amazon overtook Walmart in terms of stock market value for the first time in 2015. Now its market value, at $450bn, is almost double that of Walmart.
If there is trouble ahead for employment for jobs in retailing, across the US, Europe, the UK and elsewhere, why should we care? As consumers, the online revolution may mean better value for money.
The problem is if we don't have enough people working, we won't be doing very much shopping, online or not.
There are fundamental questions about employment levels in traditional retailing in five-to-10 years from now. Surely, government should be thinking about training people for the impact of these sweeping changes.
If half of what the nerds tell us about driverless vehicles in the future is true, what does it mean for the thousands of truck drivers in Ireland? What are their future job choices?
Those in the technology industry say that driverless vehicles are not a distant pipe dream but they are coming.
The financial advantages of the online versus traditional retailing business model, would increase not diminish with these developments.
Yet, when you look at the prices being paid for massive retail centres like Blanchardstown and Dundrum, you would certainly think traditional retailing is going to be buoyant for the next 20 years.
In a year when retailers are cutting prices to remain competitive, investors are piling billions into shopping centres. New retail schemes are being planned, along with refurbishment and extensions of existing retail centres.
The return for these investors is based on the level of rent their retail clients can sustain over a 15-to-20-year period. Higher rents are on the way, at a time of downward pressure on the prices retailers are charging.
The overall buoyancy in the Irish economic recovery is enough to keep all of these financial balls in the air for commercial property investors and retailers - just about.
But if that buoyancy dips, the Government should already be weighing up the consequences.