Holiday Hiring: Can Retailers Attract Talent in a Tight Labor Market?

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Wharton's Iwan Barankay and Alan Benson from the University of Minnesota-Twin Cities look at how a strong holiday sales season is spiking demand for seasonal workers.

Christmas is coming, and so is the mad rush by retailers to hire seasonal workers.

An estimated 704,000 jobs are up for grabs this holiday season, according to outplacement firm Challenger, Gray & Christmas. The figure marks a significant increase from years past and reflects strong consumer confidence as the economy rides high. Unemployment reached a 48-year low in September, and Americans have more disposable income to spend on gifts, food, furnishings and other goods that typically help retailers get their books in the black by the New Year.

The bounty of jobs means more competition to hire the best workers, and some retailers are sweetening the pot with flexible schedules, bonuses, gift cards and other perks to lure enough staff to get through the holiday rush. Others, like Amazon, are supplementing their workforce with robots and focusing on logistics. The retail giant announced it would hire fewer workers than in the last six years and is looking primarily for drivers to deliver packages.

The Knowledge@Wharton radio show, which airs on Sirius XM, invited two experts to discuss the changes in holiday hiring and explain what they mean for the economy. Iwan Barankay is a management professor at Wharton. Alan Benson is a professor in the department of work and organizations at the University of Minnesota-Twin Cities. Following are key points from their conversation.

Retailers ‘Heart’ Christmas

The professors say the hiring estimate is a testament to just how strong the economy is right now. But they also caution that there are a lot of unknown factors, including how newly implemented tariffs will affect spending and profit margins, and how the increased competition will affect employment.

Still, the outlook is remarkable.

“I think it’s beneficial to remember that, for people who are not familiar with this kind of data, it looks a little bit like a heartbeat,” Barankay said. “Retail employment spikes up or jumps up by like 700,000 in December or around that season, and then drops again. So, there’s a counter-effect in January-February. But the swings are around an additional 700,000 to 800,000 people seasonally.”

Benson said he likes the metaphor of a heartbeat to explain the pattern in the retail sector. “I think this year it’s especially strong. It’s just remarkable to see the numbers of job postings coming in and all the different ways that retailers are trying to get a piece of that labor market and trying all the creative strategies to stand out from the crowd.”

Christmas Is Trending

The current economic conditions are vastly different than a decade ago, when the Great Recession hit retailers especially hard. Holiday sales and seasonal employment have always been a “reliable up and down,” Barankay said. But for many companies, Christmas simply didn’t happen during the recession. It looks like the good times are back. “There seems to be a very smooth, upward trend over the last few years,” Barankay said. “And it continues to be an upward, continuous trend this year.”

According to Benson, there is plenty of survey data to support that assertion, including estimates showing there are about 100,000 more job openings this year compared to last year. “I think there’s something special about this year,” he said. “I think 2018 is going to be a big year in terms of capital investments. It’s also really interesting to see that some companies are taking some different approaches.”

Most companies are hiring more seasonal workers as part of their strategy, he said, but others are converting more part-time workers to full time as their hiring outlook improves, and some companies are increasing capital investments to save on labor. According to Money magazine, Walmart will forgo holiday hiring and instead offer more hours to existing employees.

“I think there’s something special about this year.” –Alan Benson

Make Them an Offer They Can’t Refuse

In the effort to attract the best seasonal workers, retailers are promising more this year than just the traditional employee discount. Gap Inc. is extending a 50% discount at its family of stores, which includes Old Navy, Banana Republic and Athleta. Target is offering a $500 gift card lottery to seasonal workers, and J.C. Penney is giving eight employees an all-expenses-paid trip worth $5,000.

“Just the variation of what different companies are doing, even though they’re competing in the same space, seems really interesting,” Benson said. “It always made sense for retailers to offer some employee discounts. If you think about who you want to design the screening policy that attracts the people you want to attract, you really want to design these incentive packages to get people who care about the brand. But we’re seeing some really big increases just in the size of the discounts.”

But both professors question the validity of offering lottery-style incentives as a way of attracting the cream of the seasonal worker crop. What employees really want are better wages and working conditions.

“They were inspired by the idea that people over-value small probabilities, which is why they are drawn to lotteries or these sweepstakes, where with a small probability you get a big payout, and in most cases you get a very small payout,” Barankay said. “There’s not a lot of evidence actually that they substantially attract people more. I think this is one case where the internal HR managers or incentive managers are reading too many books at the airport.”

The gig economy is also a consideration. Companies have to figure out how the side hustle fits in with their hiring practices, as many people who are participating in the labor market are working multiple part-time jobs.

From the Malls to the Halls of Amazon

Yahoo Finance reported that U.S. shoppers are expected to spend about $120 billion online this holiday season, which is a 15.5% jump from last year. It’s no leap in logic to think that the lion’s share of that amount could go to Amazon. The e-commerce leader is such a large employer that whatever the company does can reverberate through the entire retail sector. Its decision this year to hire less workers, use more robotics and ramp up logistics is important to watch.

“There seems to be a very smooth, upward trend over the last few years.” –Iwan Barankay

Yet Barankay pointed out that Amazon is a platform for hundreds of thousands of smaller companies that sell through the site. Just because they are in the background doesn’t mean they aren’t a significant source of employment.

“Over the last decade, we have shifted from buying and being employed at a broad range of companies that we recognize because we saw them in the malls, like Toys R Us, to purchasing items from companies that we don’t know and we haven’t heard of because we just go online to Walmart or to Amazon to buy from them,” he said. “So, I think the fact that Toys R Us or companies like these disappear [doesn’t translate] into a reduction in seasonal hiring, as one would predict.”

Benson agreed and warned against a direct link between Amazon’s outstanding growth and the death of some legacy retailers.

“It’s really hard to get a read because, on one hand, you have these high-profile cases like Sears and Kmart and Lowe’s and Toys R Us, and also boutique clothing retailers that have been in some financial distress,” he said. “But at the same time, Amazon is a platform, and you still see the overall numbers for the industry growing. If you were worried that all of retail is going to be taken over by a relatively small cadre of Amazon workers, maybe we are not quite there yet given that the overall numbers look strong.”

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Holiday Hiring: Can Retailers Attract Talent in a Tight Labor Market?. Knowledge@Wharton (2018, November 15). Retrieved from http://knowledge.wharton.upenn.edu/article/holiday-hiring-can-retailers-attract-talent-tight-labor-market/

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