The U.S. economy relies heavily on retail for consumption and jobs. In 2012 total retail sales (including eCommerce) amounted to $4.4 trillion. Retail supports 1 in 4 American jobs. It is directly and indirectly responsible for 18% of the U.S. GDP, and it directly and indirectly generates 17% of the U.S. labor income. Retail supports 41,620,604 jobs in the United States. U.S. Online eCommerce is only 5% of total retail sales.
Now for the sad news! As of 2013, major retailers have reported planned store closings. The numbers are staggering. Best Buys is planning to close 190-240 stores, nearly 20 percent; the Gap will close 189 stores; Wendy’s 130 stores; Sears 100-125 stores; Radio Shack 150-175; Staples 30 stores; JC Penny 300-350 stores; Barnes & Noble 189 stores. Apple at the high end is closing 20 stores. Family Dollar, at the low end, is closing 50 stores. No wonder why we cannot reduce unemployment!
The conventional view of these closings is the rise of online shopping, which indeed is increasing at a rate of 16% annually. But it is imperative to recognize that U.S. eCommerce sales amounted to $225 billion of total $4.4 trillion retail sales in 2012, or roughly 5.1 percent of total retail. Stores generate nearly 95 percent of retail sales and they are closing fast and furious.
The principal reason for store closings is not the challenge of online sales, but rather the shortage of disposable household income. U.S. population increased only .9 percent in 2012. This has been fairly stable over the decade. While population growth is mild at best, median income and median asset value has decreased substantially since the 2008 financial crisis.
The stores that opened before the crash, when the U.S. had a zero saving rate, are now closing after a household deleveraging of debt in 2008 to a rising 5-6 percent saving rate. Savings has decreased a bit in 2012 to 4 percent. This means that a stable population is spending less in retail consumption. Some experts predict the savings rate will go higher in coming years, which means still less money for retail spending.
U.S. consumer online purchases may be increasing, but that is still small potatoes compared to the reduction of store purchases from 2007 levels. Retail lost 500,000 jobs in 2008. There was a slight rebound by 2012, but we are talking about a catastrophic decline of retail’s contribution to U.S. GDP and employment. No further growth in online retail can make up for store loss to GDP or jobs for a decade, at least.
For every book you purchase on Amazon, thousands of Americans are buying less at food stores, drug stores and restaurants. Whether you are talking about consumer electronics, apparel, furniture, appliances, office supplies, and other store products, the outlook is grim.
And here we come to an inexorable equation. If households are spending less in stores, we need more population to stabilize store sales. The only solution to the U.S. decline of retail is more population. It is a delusion to think that online retail growth can sustain a $4 billion industry, – how 5% of online retail can grow to offset 95 percent of store sales.
The U.S. is in a great political debate on immigration. All sorts of arguments for and against are raised – Constitution, politics, human rights, culture, legalism, unemployment – except the economic imperatives of demographics. Our economy is dependent on consumption and we have no reasonable prospect of restoring the consumption of our current population to anything near the pre-fiscal crisis level. The only option is demographics. The U.S. has to double the size of its population to restore a sustainable level of retail sale, – the core of our GDP.
We can double the size of our population, without doubling the cost of social benefits. This is still a land of opportunity for many people around the world, who would like to come here without a handout.
The immigration debate in the nation and in Congress would be enriched by considering this demographic imperative. There is no way to escape the equation of (population) x (per capita income) = consumption. Since working and middle class income increase is not forthcoming, then immigration is our only option.