retail

Forget What You Have Heard About the Retail Apocalypse. Due to the Cloud Retailing is Booming

Cloud Retailing is Booming

Huh? You’ve heard that retail is dying. What if you were to learn that more jobs have been added faster and at better wages by new leading firms than any time in history. How? Thank the Cloud!

Stores closing, malls closing, long time retail brands are going belly-up! Each day it seems there is another story in the press that we are facing the retail apocalypse. The industry believes it. A recent survey by GetApp suggests that the days of the brick and mortar establishment will soon be gone. Two-thirds of current retailers believe that their physical stores will close within 10 years and they will have only an on-line presence. But does that really mean the end of retailing and retail jobs?

Many argue that all this woe has come about because of Jeff Bezos’ “Death Star”, Amazon. This juggernaut with its vast array of offerings, ease of use and low prices is a true child of cloud computing. In fact they are so good at it they launched a separate service, Amazon Web Services (AWS) to sell cloud computing. It too, has emerged as dominant in its field and is driving traditional computer hardware providers into the ditch.

But let’s step back a moment and examine what “the cloud” has really done to retailing. Traditional retailing has been a low wage, low productivity industry. Plus, in the U.S. we have compounded this by being “over-stored” (too many retail locations per capita). So we have an industry that is labor intensive, relatively inefficient and has high over capacity. You don’t need to be a Noble Economist to recognize something has got to give and it’s ripe for a shake up.

How do you raise productivity, minimize inventory and create a customer experience shoppers would prefer. Enter E-commerce powered by the cloud. Bezos tumbled to it first but he wasn’t the only one – just the most aggressive and focused. OK, OK, another industry ripe for disruption by technology, you say. Traditional retailers are joining the ranks of Kodak, Xerox, Blockbuster, etc. but what about all those poor souls now without jobs?

Economist Michael Mandel points the way to a new way of looking at this. He contends that retailing is going through a transformation into e-commerce. This transformation is creating more and better jobs. According to Mandel, from December 2007 to May of 2017 e-commerce created 367,000 jobs in the U.S. compared to a loss of 76,000 in the traditional retail sector. And, those e-commerce jobs pay 30% better than the “old” retail ones did. He asserts that his research demonstrates the emergence of a new middle class.

How can this be? Mandel thinks how the government collects statistics on industries has misled us. E-commerce conceptually requires a vast array of functions that are counted by the Bureau of Labor Statistics (BLS) as separate industries. Let’s take a look at Amazon to get a concrete feel for what he means. We have all heard about Amazon’s monster fulfillment centers. They enable a key feature: rapid delivery of purchases. The government does not count employment in them as part of e-commerce (i.e.. the new retailing). No, they are counted as warehousing – definitely a 20th (or better yet, 19th) century way of looking at business.

Fulfillment Centers are just a part of the equation. Think of logistics, web design and management, and actually running the cloud that they are dependent upon. Amazon employs over 350,000 people. It’s adding new employees at a rate of 100,000+ per year. That’s a lot of new jobs somewhere. Mandel tipped to this as he ground through years of labor statistics, county-by-county. Here’s a good “Aha!” example: in Kentucky, Amazon publicly acknowledges that it has at least 12,000 employees but the BLS says there are only 2,640 workers in the e-commerce category. That’s a pretty big difference.

I’ll admit that the whole perspective at first appears counter intuitive and contrarian. After all aren’t we being taught that technology is destroying jobs and soon we will have oceans of unemployed? Or, maybe it’s just that we are looking at digital transformation through lenses crafted in the industrial age. What do you think?

By John Peintka

John Pientka

John is currently the principal of Pientka and Associates which specializes in IT and Cloud Computing.

Over the years John has been vice president at CGI Federal, where he lead their cloud computing division. He founded and served as CEO of GigEpath, which provided communication solutions to major corporations. He has also served as president of British Telecom’s outsourcing arm Syncordia, vice president and general manager of a division at Motorola.

John has earned his M.B.A. from Harvard University as well as a bachelor’s degree from the State University in Buffalo, New York.

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