The headlines are always dominated by talk of job losses, but there are more serious implications for the future of retail and the attendant future of work.
It is clear that the convenience offered by Amazon and its ilk, combined with the rise of mobile as a way of reaching potential customers are starting to knock out well-known and otherwise well-established brands. In the UK, Argos, in particular, is thought to have done very well, in part because of its transition to an omni-channel approach that works well on mobile.
So if some are suffering while others are doing OK then what's at issue? A decline in sales puts pressure on cash to the point where a distressed business can't pay its way. That is very much the case with Toys 'R' Us, which is under Chapter 11 bankruptcy protection in the US and Canada following the run-up of over $5 bn in long-term debt. Toys 'R' Us was the subject of a $7.5 billion leveraged buyout by a consortium of KKR, Bain and Vornado more than a decade ago.
While current debt servicing should not have been a problem, the company hasn't made a profit in eight out of the last nine years. Toy sales have slumped, with November showing a 10% decline and this, in turn, has led the eponymous US toy store to announce the shuttering of a third of its large UK stores. Toys 'R' Us insists that it will continue to open smaller, new stores but that is by no means going to provide the cure the company needs in order to stabilize what is increasingly looking like a lost cause.
When furniture retailer Multiyork collapsed, I was surprised. I should not have been. According to reports, there are economic pressures across the whole of the 'big ticket' and related DIY markets as buyers hold back spending. One report says DFS, the sofa specialist saw a 22% decline in profit.
More generally, analysts see no end in sight for the 'big-ticket' malaise in the run-up to Christmas. It now looks like that trend is compounded by the 'Amazon effect.'
In the US, Wayfair, which has established itself as the largest pure-play retailer of household furniture and related goods took a hammering from investors last week who see Amazon's entry into the home furnishings market as an ominous sign. Investors have learned that Amazon's entry into a market is often associated with fallout among peers. But others caution:
Wayfair really is an antithesis of Amazon, which makes it largely protected from the apex predator of retail. Being the largest online-only furniture retailer in the country, Wayfair owns zero physical stores and only carries minimal inventory. The company has perfected the art of effectively undercutting traditional retailers by providing cheaper and faster shipping options, which customers seem to love — active customers jumped 38% during the last quarter to 10.3 million while average order size increased 2.5% to $250.
In the last year, I have seen a clear switch to online research and buying for all kinds of household goods. Companies like Wayfair introduce buyers to an expanded range of goods at prices to match any budget. The traditional bricks and mortar businesses struggle to compete.
The gyrations we see in retail are but the tip of the proverbial iceberg at a time when demand is continuing to sag while threats from relatively new entrants pose challenges for industries where the investments in infrastructure are difficult to flip over to digital.
While 2017 has been a year where advances in Artificial Intelligence are taken as a prime input to the general theme of automation, the instances where AI has had a significant impact are few and far between. But if McKinsey is correct, the few thousand people that have lost their jobs in retail in the last few weeks will pale into insignificance as jobs lost and in transition over the next few years mean large numbers of people will require reskilling.
The McKinsey Global Institute’s latest report, Jobs lost, jobs gained: Workforce transitions in a time of automation provides a mixed picture, hedging its bets across a wide range of possible outcomes. The difficulty for McKinsey, and pretty much everyone else who chooses to project impacts from multiple factors, is that no-one is sure whether the current wave of technological advances will provide different outcomes from those of the past. In the end, McKinsey favors a 'sit on the fence' position that what we see today as disruptive, will eventually, somehow, lead to a better position for everyone.
Maybe so, but try telling that to employees faced with the sudden store, warehouse and factory closure.