As the economy gradually recovered from the Great Recession and real median personal income increased, people were supposed to have more funds for discretionary expenses, such as in-person retail purchases. However, after examining data over the past couple of decades, we notice a potentially significant economic trend: the US retail industry is quickly shifting online through e-commerce. This already appears to be having a sizable impact on the labor market as many retail employees are being laid-off. Additionally, this trend reflects shifting consumer preferences for online shopping – which they can only fund with credit cards, thus increasing their debt – rather than in-person where they can use cash or checks to fund purchases. Specifically, e-commerce retail sales have been growing at about 5% quarter-over-quarter per Figure 1 below, over the last 17 years, proving this to be a booming industry. As this trend continues, businesses may shift operations toward an online platform, necessitating increased customer-care services through call centers, and outsourcing first-party billing and payment processing, and third-party collections to the ARM industry.
Last year, Wal-Mart, the top global retailer, changed its strategy as they bought Jet.com, an e-commerce startup, for $3.3 billion. This was the largest purchase of an e-commerce startup, reflecting Wal-Mart’s ambition to compete with Amazon’s e-commerce business as Amazon covers about 53% of total e-commerce orders. This trend also appears to hold true with regard to other major retailers as well. In early 2017, Macy’s decided to close 68 stores, lay off about 10,000 workers, and transfer $550 million into its online platform. As more retailers and large businesses join in and follow this trend, we’ll surely see e-commerce continue to gain a larger market share of the total retail industry. In fact, e-commerce’s market share with regard to total retail sales has been growing quite robustly since 2001, as shown by Figure 2 below.
Employment & Technological Impacts
As more retail companies, like Macy’s, move their operations online we should see a relatively drastic shift in the employment climate as businesses continue to lay off in-store workers in favor of investments into call centers and more complex, technologically-advanced online platforms. Retailers will be more exposed and impacted by the successes of their call center and online platforms services, as these adaptations may become the main influencers of brand reputation, further impacting customer loyalty and company profits.
Additionally, the layoff of retail employees has actually been an ongoing trend in the US for a while now. Despite increased business revenue, the number of employees fell rather drastically over the past 17 years, as shown in Figure 3 below. This may dramatically affect the economy, as many of these positions were low-wage and filled by low-skilled workers who may face the greatest difficulty finding new jobs, thereby creating a surplus of unemployed individuals throughout the economy. However, this trend bodes very well for the ARM industry, as many private collection agencies have already begun incorporating call centers and other technologically-advanced platforms in their daily operations.
Effects for ARM Industry
As mentioned previously, retailers’ shift toward e-commerce may have a few key impacts on the ARM industry, among others:
- In the conceptually more likely scenario, cash and check expenditures and transactions should decrease since consumers can only use their credit (or debit) cards, or other promotional items, such as gift cards or coupons for online purchases. Additionally, collaborations between large retailers and card service companies like Visa or Mastercard will be more frequent and attractive to customers. This will likely lead to increased credit card debt levels.
- Due to a reduction of in-person interactions in favor of more effective digital shopping operations, retailers will be exposed to potential customer care and brand-related risks if they don’t improve their online databases and call center experiences. This increases the demand for call centers, presenting another opportunity for the ARM industry since many ARM businesses already deliver and incorporate qualified call services in their operations.
Alternatively, we must consider that the laid-off employees won’t be earning any income until they find new jobs. Their income loss may limit their purchasing power and cause a drop in consumer spending, but it may also lead to a heavier reliance on short-term credit. It’ll be worthwhile to monitor this trend as it may lead to fewer overall discretionary purchases, thus leading to lower credit card debt, or it may provide the foundation for significant growth in unrepayable debts. We must also consider how easily transferable these workers are, and whether many of them pursue higher levels of education (as we saw throughout the Great Recession) or simply find other jobs quite readily.
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