Retailers are hoarding labor even as tech layoffs mount

• Some retailers are bucking the trend of layoffs and holding on to workers.
• They are keeping workers they don't need so they're prepared when business picks up.

If you're paying attention to the headlines right now, it seems like 2023 is shaping up to be the year of the layoff.

Job cuts that have swept through the tech sector have trickled into retail, with major retailers like Saks Off 5th and Wayfair slashing hundreds, even thousands, of roles.

But on the store level, retailers are holding on tight to their workers, even seasonal workers who they typically would have dismissed by now, in a practice known as "labor hoarding."

What is labor hoarding?

In the early 1960s, the economist Arthur Okun identified a labor phenomenon: Companies faced with a downturn were hanging on to employees they didn't need out of fear of being short-staffed when business eventually picked up.

It's a practice that employers have repeated during subsequent economic downturns, Heidi Shierholz, the president of the Economic Policy Institute, a left-leaning think tank, said in an interview with Yahoo Finance.

"Businesses would keep workers even if they knew that demand for their goods and services would go down," she said. "They would keep workers on because they valued the match. They'd invested in those workers. They didn't want to just let them go and then have to do the expensive retraining, rehiring on the other end when things got better."

The practice came back into vogue in summer when CEOs and economists began predicting a recession was on the horizon.

Looking ahead to 2023, retail executives are giving little indication that significant reductions are under consideration. If anything, they're telling investors in earnings calls to expect even more spending on training and retention to boost sales and maintain customer satisfaction.

CarMax said in December that even with softening sales, it had no intention of reducing the number of automotive technicians on staff since they're in such high demand and key to the company growing inventory when conditions improved.

In high-end goods, the French luxury giant LVMH said it invested more than 200 million euros in training employees in 2022, while the Michael Kors owner Capri noted a"significant" difference in sales at stores with workers trained and employed by Capri.

"The concept of labor hoarding is alive and well," Kenneth Kim, a senior economist at KPMG, told Insider. "Companies have had a very difficult time with the last couple of years in this COVID environment filling open positions. So given how difficult it has been for companies to expand payrolls, there is a reluctance to let them go."

How the pandemic upended retail labor

In the early months of the pandemic, upheaval and uncertainty led many employers to slash their workforces, particularly in sectors such as transportation, hospitality, and retail — quite the opposite of labor hoarding.

But when consumer demand roared back beyond anyone's expectations, those same companies were caught off guard.

In 2021 and 2022, the "Great Resignation" left stores and restaurants battling it out to get enough frontline staff to keep their doors open.

But that surge in demand didn't last. Throughout 2022, interest rates rose and consumer spending dipped, leading some large companies — largely tech and finance firms — to cut staff in anticipation of a tighter financial future.

Some retail brands have followed suit recently: Saks Off 5th and Saks Fifth Avenue have both cut jobs; Stitch Fix has laid off 20% of its workforce; Wayfair has eliminated 1,750 jobs; Everlane has laid off 17% of its employees; and Amazon has cut thousands of roles focused on its physical retail operations.

Retailers are hanging on to seasonal workers

Those layoffs don't seem to be an emerging trend in the retail sector, Kim from KPMG said. For starters, the divisions where cuts are taking place appear to be in tech-heavy roles and the corporate-management ranks.

Meanwhile, on the front end and in the warehouses, retailers are still in a pitched battle for staff — Chipotle, for example, announced recently that it's looking to hire 15,000 restaurant workers ahead of the spring season. And across the economy, there are still about two job openings per unemployed worker, according to Bureau of Labor Statistics data, meaning those who are laid off have a higher-than-normal opportunity to find a new role.

When frontline jobs have gotten cut, those head-count reductions have been smaller than usual. Nearly 15.5 million people are employed in retail trade, according to the January US jobs report. And while there were 417,000 job cuts in January, the official models were accounting for a lot more, since that's when many retailers typically begin laying off seasonal workers.

In fact, the unadjusted figure from January was even smaller than that from the same month in the two prior years, Kim pointed out, and no such alarm bells were going off then about retail layoffs.

The concern over a lack of workers has shifted how employers large and small think about seasonal layoffs.

"It's certainly a testament to how strong our labor market in the US continues to be," Kim said.