Ten years ago, Sandeep Bhanote started Global Bay Mobile with three friends out of an apartment. For six years they chugged along, creating apps for a variety of markets. In 2008 they decided to narrow their focus to their retail clients, making apps that would help their clients keep track of inventory or showcase their products on mobile devices. That’s when they finally shifted in to fourth gear.
“Oh my God, this is fantastic,” Bhanote remembered telling his colleagues. “These guys have a need, it’s replicable, they’re responsive…this is where we need to go guys.”
By the end of 2011, Global Bay Mobile, they had more than 40 clients. Which is why Bhanote is looking to hire at least 9 new engineers and developers.
And yet, more than 4,000 Best Buy employees will loose their jobs as the electronics retailer closes 50 stores this year. Best Buy is loosing its market share to pure-play online retailers like Amazon that can offer a more competitive price point as they don’t have to invest in as much infrastructure or as many employees.
In 2011, retail sales grew more than twice as fast as the gross domestic product and yet this is the sector that is still shedding jobs. And these retail jobs aren’t coming back. With online retail out-running the pace at which brick-and-mortar stores sell goods, retailers are shifting more and more of their business online. And they just don’t need quite as many salespeople or store managers for the same growth in volume of sales. They need app developers like Bhanote—highly skilled workers who can increase efficiency and sales from higher up in the food chain.
Retailers are investing a bigger chunk of their resources into developing and expanding the online arms of their businesses, said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consultancy firm. And an online retail model business just doesn’t require as employees as compared to a brick-and-mortar store, he said.
“You can go into a Best Buy store, look it over—touch it, feel it, ok this is it, 44 inch, then you can buy it on Amazon for $300 less,” he said. “So why would you need all these people working in all these Best Buy stores?”
Since retailers are among the largest employers in the United States, this shift from physical to online retail is exacerbating an already high rate of unemployment, he said.
There are currently 640,000 fewer jobs in the retail sector than there were 4 years ago. While most employers in other sectors are beginning to reach pre-recession levels of employment, retailers are going to continue to hire “dramatically less people,” said Davidowitz. And it’s going to hurt middle-skill level workers most of all.
“If you work in a restaurant, and you’re a bus boy, you’re alright,” Davidowitz said. “But I think if you’re a department manager at a department store, who are building almost no new stores…you’re going to have a problem.”
While the demand for middle-skill level workers—sales clerks and store managers—is petering out, the demand for highly-skilled workers—like the engineers and developers that Bhanote hopes to hire—is far higher than supply.
The retail sector is still creating jobs—just not the kinds of jobs it used to, and not nearly quite as many, said Paul Swinand, a retail analyst at Morningstar Inc.
“As big businesses grow their online, they will grow their employment. They would have grown employment faster for the same rate of sales, had they done physical stores, but it’s just changing the nix of employment,” Swinand said. “They’re hiring web designers and advertisers and not construction and store clerks.”
In addition to the highly skilled workers that retailers are hiring directly, there are many more jobs created at companies that cater to this sector—advertising agencies, PR companies, mobile middleware companies like Global Bay Mobile.
Bhanote’s Global Bay Mobile isn’t a retailer. But the only reason it can afford to add 9 more engineers and developers to the staff is because retailers are willing to invest in e-infrastructure. But retailers aren’t quite as willing to invest in human infrastructure. The cost of labor is high, and it’s a cost that is easy to cut.
“Web designers and advertisers” are the sorts of people who have college degrees—the category of workers that currently have the lowest rate of unemployment, according to the Bureau of Labor Statistics’ latest jobs report. Middle-skilled workers—high school graduates—have a rate of unemployment that’s almost twice that of those with college degrees. This shift in retail is creating more jobs for those who already have them and reducing job opportunities for those who are really hurting for jobs.
This isn’t necessarily a bad thing. Even though this more streamlined retail industry is exacerbating an already high unemployment rate, in the long run this increased efficiency and consistent growth can only be good for the economy, said Swinand.
“There’s this idea some people have, that if you do something efficient, and you lay people off that that’s somehow bad,” he said. “Well, no, cause that guy’s gonna go do something else… If that person goes home and starts a new business, then you’ve got three jobs instead of one.”
Link to interactive data visualization: Retail Jobs, Feb ’08 to Feb ’12