Posted: 4:50 a.m. Thursday, Oct. 3, 2013
By Erik Sherman
It's easy to want to think of Amazon as a bellwether for retail. But the giant's holiday hiring spree is not good news for independent shops.
Business owners often look to bellwethers to estimate what the future might hold and how they should plan. So, news that Amazon plans to hire 70,000 seasonal warehouse workers--a 40 percent increase, according to the Wall Street Journal-- should be great news, right?
Not so fast. There's a fair amount of evidence that a cheery holiday season is anything but universally expected. Plus, Amazon has become more than ever a dominant force, and its success could be one reason why so many in retail might find a lump of coal in their holiday stocking.
What the Data Says
When it comes to holiday sales, the forecast is at best cloudy and, at worst, ugly. ShopperTrak, which measures store traffic at 60,000 global locations, uses a mix of information to reach its estimates. This year, the firm expects retail sales to be up by 2.4 percent year over year in November and December, according to a Wall Street Journal report. That's compared to the 3 percent seen in 2012. Don't believe them? Walmart says that it expects weak sales to continue into the fall.
The Commerce Department last week--before the shutdown closed out some important sources of economic data--said retail sales had grown only 0.1 percent in August if you exclude cars. For a lucrative holiday season, numbers would have to trend up sharply and quickly from here out.
The International Council of Shopping Centers says that it expects a 3.4 percent increase, so slightly better than last year, according to Bloomberg. And Deloitte says retail could increase by upwards of 4.5 percent.
But placement firm Challenger, Gray & Christmas says that retailers will hire about 700,000 seasonal workers total, down almost 7 percent from last year. Companies that expect more sales hire more help. When they don't... well, you know the rest.
Retail's Biggest Force
Now notice that out of the 700,000, a full 10 percent will be reporting to Amazon. Is the company out of step with the rest of the industry? Yes, because it has become even more dominant, if you didn't think that was possible.
Equity analyst Michael Pachter of Wedbush Securities said last month that "Amazon will be the dominant retailer in the world, rather than merely the dominant online retailer." Amazon's distribution system growth has taken place at a stunning pace. Experiments with local delivery could soon include perishables. According to Pachter, Amazon consistently offers one of the five lowest prices on a range of goods: books, consumer electronics, office products, and many other things.
All this suggests that Amazon has raced so far ahead, its competitors are being left in the dust. Amazon has a most peculiar set of consumer characteristics. It has the selection and low prices of a massive super store, but with the shopping ease and availability of a convenience store and shipping that is often free, particularly for people who buy into Amazon's way of doing business with a Prime membership that offers two-day availability on orders for no extra cost. The company has managed to take two traditionally divergent trends in retailing and meld them. Even a Walmart or Target store cannot carry the array of goods in a single location and they haven't mastered the online efficiency to make a computer screen seem like a local store.
Amazon's prowess is taking sales away from everyone else. As the process continues, it will force competitors to keep lowering prices to compete, even though their physical locations have much higher costs of doing business. And the others don't understand how to operate on the thin margins Amazon manages.
So, a busy holiday? Yes, if you're Amazon. If not, this could be one challenging year's end.