Another year comes to a close and it is time to look back and reflect on what was. Here is my first list of 2012, the best/my favorite songs of the year.
1. The Lumineers - Dead Sea
2. Stars - Hold On When You Get Love
3. Walk the Moon - Anna Sun
4. One Direction - Live While We’re Young
5. Frank Ocean - Thinking About You
6. Twin Shadow - Five Seconds
7. Marina and the Diamonds - How to Be A Heartbreaker
8. Santigold - The Keepers (The Knocks Remix)
9. Passion Pit - It’s Not My Fault, I’m Happy
10. Of Monsters and Men - Little Talks
11. Phillip Phillips - Home
12. Carousel - Let’s Go Home
13. Taylor Swift - We Are Never Ever Getting Back Together
The retail industry has been undergoing a severe amount of change recently, as new technologies continue to remake, andremake, andremakeyetagain how American consumers choose to shop. The video above, which my friend posted on Facebook, shows yet another iteration on the model. In the video the store, Hointer, is a high end jeans retailer with all the latest brands. Except unlike most boutique jeans retailers, the first thing you see when walking in is not a beaming face of a sales associate or stacks upon stacks of jeans of various styles and sizes and cuts. Instead what you see is the product on full display hung in the center of the room. In the distance, the walls are flanked with fitting rooms that are prominently numbered. Browsing the jeans you select a style that seems appealing, scan it with your phone, pick your size, and the app tells you what fitting room to visit. Magically, when you arrive in the fitting room, your selection is there waiting for you having been quickly spirited in by a mechanized system in the back. In the words of the entrepreneur behind this new endeavor, this new system offers “both a lower cost and a better customer experience”.
Undoubtedly, as big of an industry as retail is, it will continue to evolve and none of the current cutting edge technologies will remain on the top of the heap for long. In the distance you can see 3-d printing, mass customization, and ever smarter recommendation engines approaching to remake this industry yet again. However a few things are pretty clear. Almost every new iteration of retailing has striven to offer the consumer ever greater choice and selection, lower prices through economies of scale and improved efficiencies, and always a move to ever shrink the role of labor in the industry.
Today, according to the National Retail Federation, retail counts for 7.9% of GDP (excluding the actual value of manufacturing the goods that ultimately sold through retail) and about 18% of the US workforce is currently employed in retail. This is a huge contribution to employment in the US and the bulk of these roles are spent in helping customers identify and find desired products, restocking/organizing product displays, and processing customer transactions. A smaller subset are filling higher skilled roles including managing the operations, commission based sales, facilitating ordering and inventory management, and setting pricing, merchandizing and marketing strategies. Considering the actual value being transferred to the consumer from retail as an independent industry (separate from the creators of the actual products being sold), and these both seem like absurdly large numbers. Why are we as an economy dedicating so much economic energy to the task of transacting sales between producers and consumers? Incidentally, agriculture and farming, which is many ways is the foundation of our economy ensuring that all consumers are adequately fed, only constitutes 0.01% of national GDP while domestic manufacturing is about 11%.
My expectation is that you will continue to see more and more turmoil in retailing as margins shrink and costs eliminated. Ultimately the consumer will be the driver of this as they continue to seek the best quality for the lowest price, driving the higher labor intensive companies to the way side (see Borders, Blockbuster, Linen & Things, all major music chains, and the newly struggling Best Buy). Taken to the extreme imagine a world where consumers have at home 3d printers that are able to construct from basic atomic building blocks any item from a vast catalog of all human creations. Think this piece of clothing looks interesting? Click print and try it on. Decide its not the right option? Drop it back in the machine to be recycled for your next purchase. In this world, there is no logistics (except perhaps to replenish the basic building materials, no warehousing, very little (if any) waste, and almost no labor). The only service the consumer is really paying for is the owner of the intellectual property that was selected by the consumer. Obviously, this world is a long long way off, but it does show where we are heading, towards a world with fewer and fewer human retail workers, more and more automation, and an ever increasing availability of selection.
So where are the job opportunities in this space?
Obviously, with each new refinement of the industry more and more power is shifted towards the original producers of content, ideas, and designs. As usual, media is on the cutting edge as self-published authors and independent musicians continue to grab more and more power away from the distributors and labels. You can also see inklings of this in the rise of etsy, small fashion companies and people like this. For those who are creative or have a good idea, we are entering a phase of the economy where it has never been easier to bring that idea to market.
Secondly, it will be a long time before distribution, storage, and merchandizing of retail products is eliminated entirely. In the meantime, there are significant opportunities to help manage and streamline the increasingly complex web getting products to consumers. Much like we have seen with the high-skill takeover of manufacturing jobs, these high value retail jobs will mix operations planning with crisis management and strategy setting to make sure the right products are available when needed by the customer. These roles will be extremely important, demanding significant training and ultimately will be able to command high wages.
A third opportunity, at least in the short term, will be in helping consumers cope with the massively increasing selection at their fingertips. While many big technology companies are investing copious amounts of resources into building ever more sophisticated recommendation engines, the fact of the matter is that most solutions that exist on the market are not able to adequately address the many emotional based needs that drive consumer demand for products. As a result, consumers will increasingly look for support in making efficient purchasing decisions and shrinking the universe of options into a small and manageable subset of high quality options. I expect personal shoppers and style consultants to enter a new phase of popularity as well as an increasing role of taste makers and trusted curators to help consumers quickly focus their decisions.
These few opportunities aside, I think the overall future of retail to be a much less labor intensive one. I would expect to see the percent of workforce employed in retail to shrink dramatically over the next few years as we've seen agriculture and manufacturing before it. Improved efficiencies will lead to higher profits and lower prices for consumers. So where will this labor force (nearly 20% of the US workforce today) go? Perhaps the future is in some nascent industry like clean energy, biotechnology, or space tourism which will take up the slack. Or perhaps an old stalwart like manufacturing or infotainment will rise again as demand surges in the developing world? Or most likely, since people need to work to buy the basics of sustenance, there will be even more downward pressure on the price of unskilled labor and a greater shift into currently ZMP services in food, personal, health, beauty, and home services. Its still too early to tell, but regardless the future is sure to be an interesting one.
The American Enterprise Institute has a great post on the latest jobs report including the graph above they grabbed from the Buearue of Labor Statistics. Even if you click through to the source data, the massive drop of in labor participation during the last recession is hard to comprehend. Since then there has been almost no uptick, with the labor force persisting between 58% and 59% of the population which is the level we first achieved back in the mid 1970s. While it's typical for labor participation to drop during recessions, the magnitude of this past drop and the lack of an immediate rebound afterwards shows just how much more extreme this recession is compared to others over the past 50 years. Unfortunately, the BLS data doesn't seem to go back to the time of the great depression, so it's hard to see if the pattern we are seeing today mimics this other much more intense period of economic adjustment, but I would suspect that you would see more similarity than difference.
Interesting stats on Solar Power in the US: "The U.S. is on pace to install as much solar power this year as it did in this century's entire first decade: at least 2,500 megawatts, the equivalent of more than two nuclear-power plants." more here: http://on.wsj.com/QxXmx9
Sunday, June 24, 2012
Interesting post in the Motley Fool today on long term prospects for the US: "For perspective, the U.S. is on track to grow its working-age population by the equivalent of six New York cities between now and 2050. China is on track to lose the equivalent of three United Kingdoms."
I think the bullish view on the US makes sense, but this graph is notably lacking all of South America, Africa and India where most signs suggest there is significant opportunity for economic dynamism over the next couple of decades. Regardless, I think this graph makes clear that global power dynamics will likely be very different in 2050.
Essentially at its core, everything we produce is merely a collection of atoms arranged in various manners. If you look across the known universe, there is a virtually unlimited supply of all of these atoms. In fact, I believe that in reality the "scarcity of resources" is actually the "scarcity of labor" in that it takes a great deal of work to move these collections of atoms into ever more useful formations. Currently when we typically talk about "resources" we mean various pre-formed collections of atoms that we mine or collect from the surface of the Earth. These formations are extremely valuable to us because they are already in an useful formation and it takes very little additional work to do all kinds of cool stuff with them. But essentially we could easily recreate these formations from the raw atoms that they consist of given an unlimited supply of work.
The "scarcity of labor" is itself founded on two things. First that we humans have limited time on this earth, and while it has been gradually increasing over the generations, it is still very much finite. The second component of the scarcity of labor is our productivity, or essentially how much stuff can we do with each hour we have been granted to live in this universe.
Human productivity has been increasing dramatically, especially over the past couple of decades. Robotics, computer technology, and increasingly sophisticated software systems are coming together to allow a human to build a system that completes a set of actions almost without any incremental human labor once set in motion. This trend is only going to accelerate as new software systems build on past tools and as advances towards semi-artificial intelligence open up the opportunity to automate ever more complicated tasks.
Increasing productivity is driving down the "scarcity of labor" by allowing humans to increase output per time spent, or alternatively to require less human time per unit of resource produced. The result is that the "cost" of resources fall. In theory, if we are ever able to sufficiently automate the resource extraction and production process that human labor input falls to zero, the "cost" of that resource should also fall to zero.
So essentially from a merely materialistic perspective, I think we are slowly moving away from resource constrained system to one that is vastly cheaper, if not actually unconstrained. Most likely rather than proceeding to totally unconstrained system we will move toward something like what we have seen in agriculture, where productivity has increased to such a degree that in advanced nations we are able to dedicate a tiny sliver of total labor to agriculture to produce enough food for everyone with essentially no shortages (a perhaps a degree of over production). I could easily see the resource extraction/manufacturing/distribution value chain dropping to an equivalently low level of labor participation and sufficient material goods produced that everyone is more or less content. This is obviously focused on the "Wal-Mart" set of material goods which are merely functional. There will always be those who choose to pay extra for prestige, novelty, or style for instance, but that is a personal choice and the core elements of material wealth will be cheap and plentiful.
This of course brings us to the most interesting trend we've seen over the past few decades which is the dramatic shift of human labor out of material production (and previously agriculture) into services. I think this is fascinating, but I am unsure that we are actually increasing net wealth with most low level services. Rather I think it may be a bizarre symptom of our economic system where you must labor in order to consume. The result is that a great mass of people who are otherwise unproductive (ie unable to provide any net increase in the productivity of the material goods value chain and are thus excluded in favor of slightly more productive people) must find some way to monetize their time. The only available option is to sell their time to others in hopes of making enough money to pay for basic needs. Some people are lucky and through education, skill, and fortune, have moved to relatively high value services positions such as lawyers, ad executives, managers, or doctors, but many are not able to successfully compete for these roles. For the majority of these people they are forced into the only remaining option which is essentially unskilled service roles such as waiters, retail sales, etc in hope of extracting some tiny sliver of marginal value to purchase the now quite cheap material goods. My biggest question right now is if we as a society are really better off having these people labor in this way, or if it would make sense to essentially liberate this group of low level service providers by breaking the link between labor and material goods. I realize this is starting to get a little cray, but I also think society is transitioning into a new situation, where the core assumptions of our economic system need to be reconsidered. I also realize that there are elements of this concept that sound socialistic, which of course is everyone's boogie man, but I think the socialism vs. capitalism dynamic is very very different in a post-labor economy.
