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Is the Retail Sector Heading Into Recession?

Retail stores close, jobs are scrapped, productivity and profitability margins get dangerously low. All of these seem to be a trend in the retail industry today and economists are concerned as the sector treads a path towards recession. This is happening all over the world.

Market Watch shared numerous graphs showing the declining levels in US employment in various retail stores. The Labor Department relayed its statistics for the first quarter of this year that recorded a loss of over 60,000 jobs in the sector, which is the worst since 2009. This data includes major retailers in the country such as Target, JC Penney, Macy’s, Kohl’s and Abercrombie & Fitch.

As for store closures, analysts project an estimated tally of 3,500 and this includes shops from the aforementioned retailers. Others have it worse like Payless ShoeSource, which shut almost 400 stores last month. Furthermore, Aeropostale, Sports Authority and Hhgregg are among the retailers that filed for bankruptcy.

According to financial services firm Cowen & Company, the main culprit is the strengthening of e-commerce. Online retailers like Amazon became major competitors and conventional stores must either adapt to the growing trend, come up with other effective ways to retain customers or face more losses.

On the other side of the Atlantic, the Irish Independent mentioned that other factors have come into play. Lorraine Higgins, public affairs head for Retail Excellence Ireland, stated that aside from “hyper-intense competition,” political events like the upcoming UK general election, Brexit aftermath and even the ‘Trump effect’ are major contributors to the recession that’s now slowly felt by the retail industry. Areas such as footwear and jewelry have suffered the most significant drop in sales. Damian Gleeson, a partner in the global accounting firm Grant Thornton, conveyed that “retail is unlikely to recover soon.”

Many economists, however, still look at the bright side and continuously highlight several steps to recovery. In the study entitled ‘Retail, Recession and Recovery’ published by Drapers Jobs, it was specified that discussions on matters like ‘online sales tax’ aim to balance the overall market for retail. Moreover, the flow of global trade can soften the blow or counter the effects of the recession.
Industry experts TeraMusu explained that raw materials which make up the backbone of industries like manufacturing and retail still represent a large part of prominent commodities that drive global economy. What retailers should focus on is how to implement a ‘slowly but surely’ approach in facets such as retaining consumer confidence and creating new sales programs which would propel the industry towards gradual recovery.

All in all, closures and job cuts are necessary procedures to ensure the survival of businesses, but the overall outlook is not bleak. Merrion Capital economist Alan McQuaid emphasised, “Retail sales continue to remain erratic on a monthly basis and are still swinging back and forth, but the underlying trend is positive.”

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