The 3 Factors Driving Retail’s Labor Shortage

August 19, 2022
5 min read

How can you ensure the ongoing labor shortage doesn't impact your brand?

Apparently, nobody wants to work anymore (or, at least, that’s what Kim Kardashian thinks.)

Hypothetically, there are plenty of jobs out there. US employers added 528,000 jobs in July, bouncing back to pre-COVID numbers. Over 40,000 of these roles are in retail trade or along the retail supply chain. 

But Kim K is kind of right: For each available role, only .6 unemployed people are open to fill it. And some brands are feeling this discrepancy more than others. 

Sign reads: "We are short staffed. Please be patient with the staff that did show up."
Source: Twitter

Amazon, for example, predicts they’re on track to run out of warehouse people to hire by 2024. 

So, why doesn’t anyone want to work in retail anymore? There are 3 reasons in particular.

1. Unlivable compensation

Working in retail was a really good-paying job… until it wasn’t. When discount stores started popping up in the 60s, keeping prices competitive meant reducing labor costs wherever possible. The trend caught on. 

Today, the average hourly pay in retail (adjusted for inflation) is $2 less than in the early 70s. And even with the growing popularity of signing bonuses, eligible candidates aren’t buying it. 

Why? Because a 1-time signing bonus loses its appeal if compensation and other benefits (like paid time off) aren’t also competitive. 

Just look at hourly pay. Working 40 hours a week, US workers need to make $16-30+ an hour to afford rent in most states. The median wage in retail, however, currently sits at $14 an hour.

But it’s not just getting paid enough to make ends meet that candidates care about; it’s earning a wage worth what the job entails. 

2. Poor working conditions

It’s not exactly a secret: Working conditions often make retail jobs a nightmare for many workers. A 2014 Retail Dive study identifies the biggest contributor as “just-in-time” scheduling methods. 

With this method, scheduling software uses a fancy algorithm to efficiently (AKA, leanly) staff its store. Typically, employees only get these schedules a week before the scheduled period starts, then need to plan their personal lives around those irregular hours. 

This makes balancing work and life near impossible. And it means an employee’s hours can be cut drastically and without warning from week to week (but more on job instability in a second). 

Blaming only unempathetic scheduling methods seems to oversimplify the issue. 

Just this week, Dollar General was hit with nearly $1.3m in fines for worker safety violations (including obstructed exit routes and unsafely stacked merchandise). 

Meanwhile, Amazon air-freight workers in California walked out in protest, demanding better pay and working conditions. 

Specifically, they want a $5 hourly raise and temperature control in the sweltering summer heat. (For reference, temperatures in the facility rose above 95ºF on 24 different days during July.)

And that event is totally unrelated to the OSHA investigation into Amazon’s New Jersey warehouse working conditions after 3 employees died in 3 weeks at 3 different facilities.

3. Job instability

Hypothetically, retail corporate jobs should offer more job security than on-floor staff, right? After all, ecommerce continues to grow despite the recent economic downturn.

But that’s not the case. With looming recession fears and shifting consumer behavior, retail is seeing a summer of layoffs. 

Shopify laid off 10% of its workforce, saying its post-pandemic shopping bets “didn’t pay off.”

Allbirds laid off 23 employees (8% of its global workforce) after reevaluating “roles and processes.” Warby Parker cut 63 corporate roles (15% of its workforce) before reporting Q2 earnings. And Peloton cut 784 jobs in August after laying off 20% of its workforce in July. 

(Glossier, SweetGreen, and Beyond Meat are just a few more participating this season.)

But these layoffs aren’t only happening in the DTC space. Walmart said earlier this month that it’s slashing 200 corporate roles. That’s only a few months after the megacorps said they were overstaffing on purpose. 

And Victoria’s Secret quietly laid off 160 corporate folks (a move they claim will save ~$40m a year). 

Needless to say, joining a brand that’s making headlines for layoffs doesn’t exactly seem like a safe bet. And in an unstable economy, job security is pretty much everything. 

How retailers can combat the labor shortage

Admittedly, we don't have a perfect solution to the labor shortage (after all, we can't make people want to work). But we do have a few tried and true tricks that will make people want to work for you

Raise wages

Bare minimum, make sure you're paying a livable wage for the area in which your employees work. AKA, can they comfortably afford rent working 40 hours a week?

From an operational standpoint, this can be difficult, expensive, and time-consuming. After all, raising wages typically means you're cutting into your margins or simultaneously raising prices. 

But recruiting, onboarding, and dealing with turnover are ultimately more expensive and time-consuming. With 63% of Americans living paycheck to paycheck since the pandemic's beginning, the size of those paychecks matters if you want to keep your employees around.

Expand benefits

These benefits don't have to be anything crazy, but they should be something employees care about. So, a ping pong table in the break room won't be as meaningful as, say, an extra week of PTO every year or set schedules that employees can plan their lives around. 

Publix, for example, offers employees a profit-sharing program and stock purchase plan to attract new hires. Then, the grocery chain uses a "succession planning" model to convert part-time employees to full-time. How? By offering things like tuition reimbursement and offering raises every 6 months. 

Thanks to these added benefits, the average store manager stays for 25 years (not a typo). And their sales went up 7% in 2021 alone.

Optimize your ops

When it comes to optimizing ops, the name of the game is freeing up working capital. And while some brands did this with layoffs (not a super effective hiring strategy amid a labor shortage), you can do this via inventory optimization instead. 

For instance, brands generate 40% more revenue when they manage their inventory with Cogsy (which you could reinvest in retaining top talent). They also run leaner operations (AKA, hold less merchandise and accumulate less holding costs) without stocking out. 

Be transparent

Let's be real – change is scary. And in this economy, a lot could change with your brand. You might need to implement staffing changes, cut a few benefits, or say counter with lower raises. That's okay. 

Generally speaking, employees won't up and leave if they understand why you're implementing these changes. Of course, within reason, they won't.

When preparing to implement these changes, be sure to: 

  • Tell your team about changes first (even if they're not directly impacted, you don't want them learning about it via a headline or a coworker).
  • Provide space for an open forum. Meaning, offer context on the changes to come (ideally in a live conversation), then answer any questions your team has.
  • Hear what your team has to say. Some changes or employee asks (like safe working conditions) are non-negotiables. When these come up, actually listen to what your team members have to say and work together toward a solution.

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