Earlier this month, Senator Marco Rubio reacted to news of rising mall vacancies by calling for help for the “millions of workers who will be increasingly displaced.” Yet for all the talk of the “Death of Retail,” reports of store chains going bust and malls closing, the stock market appears to be telling a more upbeat story.

When it comes to equities, much of the downside is already priced in. For example, the S&P 1500 Textiles and Apparel Industry Index, a list that includes Michael Kors, Steve Madden and Perry Ellis, has been outperforming the broader market for the last year. Despite the reporting about Amazon laying waste to the sector, major department stores such as Macy’s and Kohl’s have been outperforming the broader consumer discretionary sector this year.

In many cases, the headlines overstate the weakness in the sector, but structural issues in the retail industry aren’t a new phenomenon.

There is a widely held belief that the rise of e-commerce has led to widespread job losses in the retail industry. However, employment in the trade has been declining as a share of private sector employment since the mid-1980s. At 12.7 percent, retail’s share is at its lowest point since the 1970s. This relative decline in jobs has occurred even as consumer spending climbed to 69 percent of gross domestic product from about 63 percent in 1985. Long before consumers started buying goods online, they were already shifting away from retailers.

Today’s market focus, nonstore retail employment, a proxy for e-commerce, has admittedly been surging since 2010. However, retail employment outside of nonstore retailers was advancing at a fairly respectable pace until early 2017. From 2010 to 2016, it grew just over one percentage point a year, broadly in line with the growth in recent cycles. Last year, retail employment excluding non-store retailers declined by just 0.3 percent.

Of course, some retail industries are not especially vulnerable to internet competition, at least for now. For example, since 2010, motor vehicle and parts dealers, gasoline stations, building-material and garden-supply stores, and food and beverage stores have been large drivers for retail employment. However, it is not immediately clear these subindustries are in direct competition with internet retailing. Thus, it seems there has been continued job gains in the retail industry since 2010 with some shifting of employment between subindustries along the way.

As the chart above shows, department stores have been the largest drag on retail employment since 2010. After a modest improvement after the end of the recession, department store employment has been falling steadily since 2012.

The Bureau of Labor Statistics places department stores under the umbrella of General Merchandise Stores, which are establishments that sell a wide variety of goods from a single location. Warehouse clubs and supercenters also do this, and employment growth in this category has been on the rise.

A similar phenomenon is occurring in commercial real estate. Since 2010, commercial construction of “merchandise shopping” has climbed at a mediocre 4 percent annualized pace. By contrast, real construction of warehouses, which benefits from online retailing, has surged 15.8 percent. Like employment, this is an example where changing dynamics in the retail industry have produced a shift from one subsector to another, not an erosion of total activity.

The gap between the subindustries of department stores and warehouse clubs suggests that for certain goods, consumers may not value the shopping experience all that much. Heading to a warehouse to buy staple household goods in bulk is fine, but Americans may want something more when going to a traditional department store.

So take the ominous reports of retail’s demise with a grain of salt. Yes, e-commerce has displaced many retail jobs, causing some very visible damage, such as empty malls. But other retail categories appear to have picked up the slack. Although this macro analysis could mask distributional and regional consequences, for now, let’s focus on the positive: Retail employment continues to rise, and the bad news is largely priced into the market.

Source: Bloomberg

What does the future hold for retail employees? Well, there’s just no way to put it gently. The days of the retail clerk are over. By clerk, I’m referring to the millions of retail workers who operate checkouts, greet customers at the door, count inventory, look up prices, scan bar codes, corral shopping carts and do their best to remember snippets of product information about the vast assortments they carry. These jobs will all but disappear within 20 years, perhaps sooner.

Part of what’s driving this change is the quickly growing gap between customer service expectations and reality. A recent survey indicated that a full 48 per cent of shoppers today believe that they know more about the product they’re looking for than the sales associate helping them, and chances are they’re right. It’s never been easier to rapidly gather knowledge about specific products.

More startling, though, is that 67 per cent of those surveyed have doubts about whether the sales associate helping them is even telling the truth. I suspect this has less to do with consumer paranoia and more to do with living in a world where the correct answer to any question is two clicks away. We trust Google infinitely more than we trust salespeople. And so, in a world where partly right is as good as being wrong, the relative utility of retail salespeople is diminished. In fact, as research released by Google indicated, two-thirds of shoppers said they’ve been unable to find the information they need in stores, resulting in almost half of them being left feeling frustrated.

Exacerbating the situation is the ongoing battle for higher wages by retail and hospitality workers. Few would defend the miserably low wages that retail has become notorious for paying. In other words, for at least 50 per cent of retail workers, supporting a family with a spouse and two children on a retail salary implicitly means living in poverty. In the United States, for example, the median wage for all retail workers in 2015 was US$11.01 per hour, or US$22,900 per year. In the same year, the poverty threshold for a U.S. family of four was set at US$24,339.

You might expect such a low income to insulate retail workers from technological disruption, but it actually makes them much more vulnerable. Here’s why. While the federal minimum wage is currently stuck at US$7.25 per hour (some states have minimums that sit slightly above that), labour groups have been fighting for a mandated US$15 per hour. Two U.S. states, New York and California, have already signed bills to move the minimum wage to US$15 and an additional nine U.S. cities have approved moves to a US$15 minimum, some already taking effect by 2017.

The problem inherent in this increase is twofold. First, most economists agree that even a US$15-per-hour minimum wage falls short of what it really should be if wages were properly indexed to inflation. Therefore, it’s likely that the push to US$15 is only a stepping stone in what will be ongoing pressure to raise minimums even further. And while raising wages is the morally correct thing to do, it doesn’t follow that there can possibly be a reciprocal increase in individual productivity to meet it. In other words, the nature and productivity of the work at US$9 per hour is likely to be no different than at $US15. The difference will have to be accounted for in either lower corporate profits or higher consumer prices. Sure, we can argue the bigger ethical questions that surround corporate and consumer greed, but none of it solves the problem at hand.

Second, compounding the case against workers is the fact that an army of technologies stands at the ready to take over their work. For example, California-based Simbe Robotics recently introduced its Tally robot, the world’s first fully autonomous stock-keeping robot. Able to operate for between eight and twelve hours on a single charge, Tally robots patrol the aisles of grocery stores visually checking and recording up to twenty thousand products at a shot, and they do so with near-perfect accuracy. They then relay this information to store management for action or correction. The robots can detect even the subtlest shelving errors or out of stocks. According to Mirza Shah, Simbe’s chief technology officer, companies such as CVS or Walgreens would have to dedicate between twenty-five and forty staffing-hours per week to accomplish the same amount of work as Tally, but even then, humans would complete it with far less accuracy.

New England–based robotics company Symbotic LLC makes robotic autonomous warehousing technology that can race through warehouse aisles and literally climb racking to put orders together in a fraction of the time it takes human workers. As a result, the technology can cut labour costs by up to 80 per cent and reduce the warehouse footprint by 25 to 40 per cent. Target is now using this technology in one of its largest distribution centres in California.

If you’re thinking that inventory and warehouse jobs are more suited to robotics but that the sales associate role requires the human touch, Lowe’s suggests otherwise. Following on the heels of two years of testing robots in its Orchard Supply Hardware store in San Jose, Calif., the company recently announced that it would be introducing a “fleet” of robots in its San Francisco-area stores. The robots, called LoweBots, are programmed to greet customers at the door, respond in multiple languages, field product inquiries and direct customers to the items they’re looking for. In addition, store staff can access the LoweBots for up-to-the-minute information on pricing or inventory. Moreover, the robots are able to analyze data and detect patterns that might influence business decisions in real time. And all without ever taking a lunch break, a sick day or even a paycheck!

But what if a customer isn’t sure what product they want or need? Can technology help them find exactly the right product? That’s precisely the problem Mumbai-based Fluid AI set out to solve when it partnered with IBM and U.S. retailer The North Face to create an artificial intelligence–powered shopping bot called Expert Personal Shopper (XPS). Using IBM Watson as the brains, Fluid created a customer service interface with which customers can find the perfect jacket simply by answering a series of questions posed by the application. Using natural speech processing, the app gradually narrows down the wide assortment of available products. For example, you can begin by saying, “I need a jacket for a trip to Vermont in the late fall.” From there, the program will ask you a variety of relevant questions. It may ask you what activities you plan to do. Or it may inquire about the weight of jacket you’d prefer. As you answer each question, the AI will modify the potential recommendations, eventually landing on a few suggested products that meet each of the criteria you’ve indicated. And it will only get better, because the more people use the program, the smarter it becomes. IBM was so impressed that it acquired Fluid’s XPS technology in October of 2016.

And if you’re among those who believe that our innate empathy and sensitivity to emotion is what safeguards humans from obsolescence at the hands of technology, it’s important to know that SoftBank Robotics is building emotional sensitivity into its humanoid robot, Pepper. Pepper will not only respond to commands but will do so with sensitivity to the emotional state of its user.

While Steve Carlin, SoftBank Robotics’ vice-president, agrees that these are powerful new technologies, he in no way considers them precursors to any sort of robot apocalypse. At least for now, he sees the use of robots in the retail environment as limited to low-level operational tasks such as helping customers navigate the store or gathering basic information about products or services. He doesn’t anticipate scores of robots displacing people in stores any time soon.

Yet, according to a recent study from Oxford University, the impact of robots and AI on retail employment may be coming sooner than most of us think. In examining the likelihood of different types of workers being replaced by technology, the study determined that there is a 92-per-cent probability of front-line retail workers being technologized over the coming decade. So, retailers everywhere will face difficult decisions in the years to come.

It stands to reason that companies such as Walmart will be watching such technologies with great interest. After all, consider that the company employs more than 1.3 million associates in more than four thousand U.S. stores. The potential cost savings from technologizing even a small percentage of that sales force would be astronomical. And Walmart is not alone. The retail sector is North America’s largest employer, accounting for more than 15 million workers, and in an industry continually challenged for profitability, the potential upside of replacing workers with technology has to be tantalizing.

But all this is not to say that we will soon be shopping in dystopian future stores devoid of people. In fact, while robotics and AI can be superior to humans at executing repetitive and linear tasks, there are as many things that they are poor at.

For one thing, robots tend to have weak fine-motor skills, making the manipulation and demonstration of complex objects or tasks very difficult and slow. Therefore, as retail spaces become more experiential in nature, they’ll require human beings to operate and demonstrate products for consumers. And artificial intelligence, while tremendous at retrieving factual data and solving linear problems, is not so adept at intuiting creative and sometimes lateral solutions, much less forging an emotional connection with a customer. Technology, on its own, tends not to be the optimal solution.

Above all else, what humans bring to the table is their humanity. The retail workers of the future will be creative problem solvers who use lateral thinking to assist customers. They will be adept with technology and employ clienteling and other technologies to expertly guide shoppers and personalize recommendations. The retail associates of the future will be brand ambassadors – enthusiastic superusers of the products that the retailer trades in – who can speak with customers from first-hand experience. They will be the ultimate personification of the brand.

And for all this, the retail associates of the future will not need to protest or picket for a living wage. Instead, they will have employers falling over themselves to pay them well because the retail shopping space of the future will marry the efficiency and effectiveness of technology with the expertise, enthusiasm, empathy and creativity of outstanding human beings. Retail will cease to be the job it has become and reclaim its rightful place as a profession people can be proud to pursue.

Source: The Globe and Mail