What’s Causing the Retail Slump?

Whether it’s going to the mall or taking a stroll down Main Street, Americans love to go shopping. In fact, consumer spending powers about two thirds of the U.S. economy, according to the U.S. Bureau of Economic Analysis.

But the retail sector has been in a slump in recent years, and that’s potentially a cause for concern for the many people who work in the industry, including many who invest on Stash.

What is the retail industry?

The retail industry is filled with big name brands you probably use almost on a daily basis. We’re talking about companies like Best Buy, Costco, Home Depot, J.C. Penney, Target, and Walmart, to name just a few.

These companies are often called bricks and mortar stores, because unlike online competitors like Amazon, they operate from physical stores where consumers come in to shop around and make their purchases.

But many of these stores are experiencing difficulties, because the way people are spending money is reportedly changing.

Retail sector: The challenges

In fact, scores of retail stores have filed for bankruptcy or closed their doors in the past year, including RadioShack, Payless Shoe Source, and The Limited. And In the first four months of the year, the sector lost 72,000 jobs, according to a recent report by Bloomberg Businessweek.

That’s potentially a big problem because retail is also one of the largest segments of the economy, generating nearly $5 trillion in sales in 2016, according to the U.S. Census Bureau. That’s roughly one third of the Gross Domestic Product, or GDP, which is the total of all goods and services the economy produces.

Retail is also a big employer. About 16 million people work for U.S. retailers, or one in nine people, according to recent reports. More than 8 million people work as retail salespeople and cashiers, according to the Bureau of Labor Statistics. That’s about five percent of the entire U.S. labor force.

And a slump in retail is likely to hit home for those of you who invest with Stash. Of those who have reported the industry in which they work, roughly 40% say they’re employed by the biggest U.S. retailers.

So what’s going on?

• Increasing numbers of shoppers prefer to make their purchases online. Ecommerce shopping is expected to grow by more than 40% to about $500 billion by 2020, according to research firm Forrester. Of course, Amazon is the 800 pound gorilla in online shopping, and in recent years it’s made big inroads in shopping, with easy return policies and services like Prime, which promise to get users deliveries within two days.
• But even some of the traditional retailers are launching their own eCommerce divisions, which can cut down on sales at bricks and mortar stores. And it turns out they are automating jobs that used to be done by people.
• There’s an oversupply of malls. And when big anchor tenants–the Macy’s and Sears of the world–don’t do well and decide to leave, there’s a spillover effect, reducing traffic to other retail stores.
• People appear to be spending their money in different ways–like going out more for dinner more, for vacations, and on the ever-increasing cost of health care, according to a recent report in The Economist.

Is there any good news for the retail sector?

It’s not all gloom and doom however. While ECommerce is certainly a growth opportunity for jobs, U.S. consumers still prefer to shop in stores for most products, according to this report.

The Bureau of Labor Statistics forecasts the number of traditional retail sales jobs to continue growing by 5% through 2024.

Here are a few more details about Stash investors who work in the retail sector:

• The majority earn less than $25,000 annually.
• The top three funds they’ve invested in are the Moderate Mix and Blue Chips and Conservative Mix funds.
• By contrast, the top funds for the average Stash investor are Delicious Dividends, Blue Chips, and Moderate Mix funds.  

Key Takeaways:

Consumer spending fuels the U.S. economy, and the retail sector is one of the biggest employers in the U.S. In recent years, the traditional retail industry has suffered from weaker sales and layoffs as Ecommerce sales have continued to gain ground. U.S. consumers still prefer to shop in stores for most items.