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Retailers' seasonal hiring plans face labor pressure

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Retailers' seasonal hiring plans face labor pressure

The holiday season is almost four months away, but a highly competitive labor market is causing retailers to bring forward their seasonal recruitment plans.

For the second year in a row, Kohl's Corp. will begin its temporary hiring in August, two months earlier than it did in prior years. Experts say that in addition to hiring early, retailers may have to consider raising wages and leveraging their existing workforce if they are to fill their vacancies for the holiday period.

"Right now, labor market power favors workers and they have more choices, so retailers are going to find that they have to entice the workers either through higher pay or more scheduling flexibility or some other benefit," said Scott Hoyt, senior director at Moody's Analytics.

The change reflects historically low U.S. unemployment. In June, the unemployment rate was 3.7%, a slight increase from 3.6% in May and April, when it was the lowest rate since 1969, according to the Bureau of Labor Statistics, or BLS. The retail industry hired 770,000 new workers in May compared to 816,000 job openings.

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The shortfall is being felt the hardest in fulfillment and logistics as one-day delivery becomes the new standard for retailers, according to David Weiss, partner at retail consultancy McMillanDoolittle. That trend will be accentuated by the increase in online orders during the holiday period.

"The number of people that are needed in order to fulfill orders is definitely going up and with a tight labor market that will be harder to do," said Weiss.

Wages on the rise

The tight labor market has helped boost wages in the retail trade. Average hourly earnings for retail workers jumped to $19.57 in June from $18.68 a year earlier, according to the BLS. Meanwhile, the average hourly earnings for the total private non-farm industries grew slightly to $27.90 from $27.05 in the year-ago period.

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"In some sense, the wage is going to be able to grease the wheels of seasonal hiring," said David Deull, an economist at IHS Markit. "It's looking like retailers are having to go out of their way a little more to increase wages."

Target Corp.'s decision to increase its minimum wage to $12 from $11 in early 2018 paid off later in the year when it set out to hire 120,000 seasonal workers.

"That helped us reach our seasonal hiring goal ahead of schedule, which gave our teams a lot of extra time to train and prepare for our busiest season of the year," Target's chief human resources officer, Melissa Kremer, said in April. Kremer's comments followed Target's announcement of its plan to raise its minimum wage to $13 per hour with the goal of reaching $15 by 2020.

Other major retailers have also hiked pay in the past year. Walmart Inc. raised its minimum wage to $11 in January 2018, while Amazon.com Inc. increased its base pay to $15 in October 2018.

Work smarter

Rather than hiring and training temporary workers, paying existing employees to work additional shifts could be a better solution to seasonal demands, according to Brandon Fletcher, analyst at Sanford C. Bernstein.

"You'd think that retailers hired [temporary workers] because it's just so much work they can't hand it all to their existing [employees], but that's not true. The real reason they do that is they don't want anybody to get paid overtime and that's where we think there's going to be a little difference in strategy," said Fletcher.

Retailers are now investing in technology that makes scheduling easier for employees interested in picking up additional shifts at any given time, Fletcher said.

However, Sam Coffin, economist at UBS, said that although joblessness is near a historic low, there are people who are unemployed but are not actively looking for a job, and they could be prospective seasonal hires.

"Despite that low unemployment rate, we see space for people to come back into the labor market who were out of it," Coffin said.

However, Fletcher is not convinced that a temporary retail job will be enough to pull those without jobs into the labor pool.

"I don't think those people are going to come out of not looking for a job just to do three months in a retail [job], so I think [this] will be a difficult time for retailers to get a hold of temporary and seasonal workers," Fletcher said. But he added that retailers have a few options to work around the labor pressure.

"I get the idea that it would be different in a way because it's been a long time since unemployment has been this low, but I think it's solvable with the weapons retailers have," Fletcher said.

The hiring challenges facing retailers now are a continuation of struggles felt last year. Retailers employed 576,800 seasonal workers for the holiday season in 2018, according to a preliminary report from the National Retail Federation, or NRF, in January. "Retailers would have been happy to hire more seasonal workers if they could have found them. Our industry continues to have more job openings than applicants even for full-time positions," NRF Chief Economist Jack Kleinhenz said in the report.

Kohl's is the first major operator to announce its seasonal hiring plans for 2019. Marc Chini, senior executive vice president and chief people officer, said in a July 17 statement that the early recruitment "positions Kohl's for success during the back half of the year and ensures our store teams are fully staffed and trained to meet the needs of our customers during the holiday season."

Retailers have typically kicked off their seasonal hiring in the fall, but Hoyt believes the overwhelming demand for staff means those plans may well be brought forward.

"I think it's likely that that trend will continue," Hoyt said.