By Neil S. Siskind
The coming economic (and stock market) crash may not be caused by announcements of corporate earnings shortfalls or impending interest rate hikes, and, thus, in the market’s immediate desire for equity multiple compression, and a rapid sell-off. It also may not be caused by any comments or actions of President Trump, any events in or around North Korea, or any irrational exuberance occurring in technology stocks. It will likely start on “main street”, and it will be either an economic event or a social crisis culminating in the awareness and wide acknowledgement of an existing structural economic dilemma that forebodes long-term future earnings pressures due to pervasive and persistently high unemployment and low wages. The on-going evolution of retail will be such “event” or “crisis”.
Nationally, gas stations have been closing in droves for years. The ones that remain open are only marginally profitable, if at all. In the past 24 months, and in the past 6-9 months, in particular, restaurants, nationwide, are also closing in droves (much, if not all, due to the Internet and other technological factors), even those restaurants that have been in business for 30, 40, 50 years. Retail stores across America are closing in droves- even retail stores that have been in place for 40, 50, 60 years- because of the Internet (Amazon, in particular, and e-commerce, more generally).
Remember, it is not only the employees in retail stores and restaurants (mostly unskilled workers) who lose jobs when their companies close- but also employees (and business owners) of their respective support services- e.g. store cleaning companies, window washing businesses, store display and store racking manufacturers and distributors, store signage and awning companies, electricians, restaurant equipment suppliers and cleaners, and on, and on (even landlords- who need the rental income from stores to pay their mortgages and property taxes- suffer). And don’t forget all the local daycare centers handling the children of retail workers, and the companies who print-up coupons, vehicle wraps, and other retail marketing materials. These services around the nation can not just pivot to offer their services to factories in China or distribution centers in Illinois that are now manufacturing, marketing, and shipping directly to the consumer. It’s just “lost work”.
Consider, too, that when consumers shop from home for items such as apparel and home goods, they do not pass-by other stores, such as liquor stores, and make impulse buys. So, the pain of brick and mortar retailers, due to online competition, causes pain in other brick and mortar retailers, even though such other retailers, like liquor stores, may not have equally as big online competition- it’s just a domino affect. The ripple effects throughout the economy from this retail evolution will be far more profound and damaging to the economy than is being assumed and/or reported. You rarely, if ever, see interviews on CNBC of people who were laid-off as the result of brick and mortar bankruptcies, downsizings, or store closings.
It is not as if the employees of such retail stores can go work for Citibank or Home Depot. They don’t have the skills and/or these big companies can’t absorb all the employees. Creative destruction completely destroys many- permanently. People who work in stores can’t just drive hundreds of miles to, instead, work in warehouses/distribution centers that sell direct to consumer. It’s not that simple. There are families involved, expenses required, and likely pay-cuts and longer hours required- and this is if a distribution center- or some other back-end aspect of technology businesses- are even hiring and are even located nearby. Moreover, e-commerce retailers (the ones that Amazon is not driving out of business) often have their customer service and shipping services handled overseas. So, a brick and mortar worker can not just go work for an e-commerce retailer. (E-commerce companies, themselves, are concerned about, and are suffering from, their product category being “Amazoned”- meaning that Amazon could enter into their supply chain by buying product direct from manufacturers and reselling product to consumers, just as Amazon has done in the auto aftermarket category.)
Moreover, I see long-lived product distributors that have had years, and even generations of success, closing shop or seeking to sell themselves because their channels for products have been consolidated considerably by the growth of big box retailers. For example, a widget wholesaler that sold its widgets to a hundred retail hardware stores for 50 years, because those stores have closed, now have to sell into Lowe’s and Home Deport- or die. Many of them die. Home Depot can’t buy from everyone- and in many cases, they buy from, or own, their own factories. They don’t need the supplier. So, job losses due to the retail evolution are occurring at the wholesale and manufacturing levels, too.
One (of many) noteworthy results you are seeing from these non-skilled worker job losses, is a rush by these workers into a (low-skill and low wage) job that can not be outsourced, or “Amazoned”, or replaced by a sudden new technology; how many dog-walkers do you see in your neighborhood? Are we headed for a society of only large corporations…and their dog-walkers?
The Fed’s recent comment that there is no price inflation, but there is job growth, is, in and of itself, a riddle and a conundrum. It (the Fed) is suggesting that companies have no pricing power- but are hiring. That really makes no sense- like much of what comes out of the Fed. This is a topic that, in and of itself, requires its own debate on what this evidences, and what it indicates or portends. It requires a careful look into which employees are being measured- and which are not being considered. At a minimum, I’d suggest that, part-time, not full time workers, are being hired, and that wages will long be under pressure. In other words, inflation is dead (except for Amazon, who will, at this rate, control all the pricing of products in America, and perhaps, the world, if things continue this way). Even if there have been job increases in technology, for instance, it does not mean that all the retail and retail-related job losses can be ignored. The losses will affect consumer spending (and crime rates) unless many of such job losses are absorbed by large national retail companies and technology companies. I don’t think that the retail layoffs and related downstream (and upstream) layoffs are yet appearing in the numbers- or are being properly accounted for. For examples: (i) Many retail workers (such as waiters and busboys) are paid mostly, or entirely, in tips- so it can be impossible to measure their new unemployed status; (ii) A clothing boutique owner who closes her boutique after 10 years due to growing e-commerce competition, and who is now without a business, is unlikely to file for unemployment- for a variety of reasons.
The retail closures and losses on “main street” will “trickle-up” to Wall Street. Perhaps there will not be “imminent” earnings losses that will cause stock prices to fall, since many companies sell worldwide, and by keeping input (labor) costs low, they can keep profits high (for the time being)- but the social fallout from brick and mortar retail destruction (including stores, restaurants, and all the respective support services and all of their suppliers) will affect the greater society, and, eventually, profits; and God forbid an interest rate increase (or any other factor) slows down housing, affecting household wealth and all the housing support services, causing more “main street” job losses- let’s just say it would not be good.
It isn’t only retail- and all its labor- that is being decimated by technology and the mammoth size of companies. Even Snap, Inc., owner of Snapchat, a company with millions and millions of customers, the most creative and cutting edge of products, billionaire investors and underwriters, and that operates in two of the most desired and modern industries, Social Media and Augmented Reality, is seeing its stock price decline and profit picture limited as the result of Facebook’s (and Instagram’s) constant stealing of its ideas and use of its wealth to try to put Snap, Inc. out of business- just as Amazon is seeking to do to all other retailers (and even to companies in non-retail sectors). Large companies have become so large that their financial resources are insurmountable, and they are are muscling any smaller businesses, and small business, in general, right out of the economy- and all of the U.S.-based labor that goes with it- and they are rewarded as their stock prices keep rising……for now.
None of this is good for U.S. employment, or for wage growth, or for consumer spending, or for profits and stocks, or for society.
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About the Author
Neil Siskind is: President of The Siskind Law Firm, focused on product investments, trademark licensing, product distribution, and real estate; Founder & Chairman of The Fatherhood Assignment™, a think tank and advocate for children with absentee fathers; Founder of the global charity marketing initiative, Caring is Free®; Founder of National Fatherhood Day™; Owner & Conservator of The Neil S. Siskind Nature Preserve, over 7 acres of conserved waterfront land along New York’s majestic Hudson River; and author of The Complete Guide To The Ways To Manufacture & Sell Your Products.
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