Imbalance in Retail Employment and Earnings Growth Due for Correction
The ratio of employment expansion to revenue growth is "unsustainable," according to the executive director of the National Center for the Middle Market.
Employment in the middle-market retail sector grew at a rate nearly three times that of revenue in the third quarter of 2017—an “unsustainable” ratio, according to Thomas Stewart, executive director of the National Center for the Middle Market.
Employment grew 9.1 percent annually while retailers posted just 3.2 percent revenue growth in the same period, according to the NCMM’s “3Q 2017 Middle Market Indicator” survey.
Presenting his organization’s findings during a webinar on Wednesday in partnership with ACG, Stewart suggested that the outsized employment growth reflects retailers’ hiring of IT staff, e-commerce experts and warehouse employees as companies adapt to technological shifts in the middle-market retail sector.
“It is a forecast of a real change in the mix of the retail employment base,” said Stewart, whose group regularly publishes research about the middle-market economy.
“It is a forecast of a real change in the mix of the retail employment base.”
THOMAS A. STEWART
Executive Director, National Center for the Middle Market
But the wide gap between employment and revenue growth will likely be temporary.
“Something has to give pretty quickly,” Stewart said, adding that either revenue growth needs to tick upward or payroll expansion must slow to restore equilibrium.
Regional Power Wanes
A prevailing trend in the broader retail sector—the dominance of e-commerce giants like Amazon—might finally be impacting middle-market retailers in a meaningful way, according to the NCMM’s survey, based on responses from 1,000 CEOs, CFOs and other C-suite executives of middle-market companies.
“Midsize retailers have been holding on perhaps longer than some of the larger national retailers,” Stewart said, in part because middle-market companies often have a local or regional focus, sell a distinct set of products, and benefit from loyal customers, helping to shield them from the threat of online behemoths.
But revenue growth is slowing, signaling they too could be vulnerable. Midsize retailers’ 3.2 percent annual revenue growth in the third quarter was down from 7.1 percent in the prior quarter. And middle-market retailers say they expect just 2.9 percent growth over the next 12 months.
Kathryn Mulligan is the associate editor of Middle Market Growth.
