Written By: Gargi Sarma
The combined effects of labor economics and technological improvements have drastically changed the global retail environment in recent years. Consumer purchasing habits, retailer operations, and company labor management strategies have all changed as a result of these two significant reasons. This article explores how worldwide shopping habits are being driven by labor economics and technology, as well as the potential they bring for the retail industry going forward.
Labor Economics and Its Influence on Retail
Labor economics studies how the retail industry is impacted by wage structures, employment conditions, and labor supply and demand. The retail industry has been significantly shaped in recent years by changes in worker expectations, pay rises, and labor shortages.
Figure 1: Labor Costs vs. Automation Adoption in Retail (2015 - 2023) in US (Source: US Bearue of Labor Statistics, Deloitte US Consumer Business Retail Outlook)
The Demographic Shift in the Workforce: The generational shift in the workforce is one of the biggest developments in labor economics in the retail industry. More part-time workers, gig workers, and others with more flexible work schedules are joining the traditional retail industry, which was formerly primarily made up of hourly workers. To fulfill these needs, retailers are changing their employment procedures, and technology is a key factor in making this possible.
For instance, businesses like Amazon have made significant investments in automation to control rising salaries, fight labor shortages, and boost efficiency. By using robots in its fulfillment centers, Amazon has lessened its dependency on human labor for physically taxing jobs like sorting and stocking. To operate these automated systems, however, there is now a greater need for tech-savvy workers, indicating a transition towards a more trained workforce.
Growing Wages and Expectations: As a result of the epidemic, worker benefits and compensation were reevaluated, and many employees are now calling for greater pay and work-life balance. In response, retailers are offering more flexible scheduling and raising earnings. Because of this, companies have been compelled to reevaluate their pricing strategies in order to account for growing labor expenses.
Walmart is one such example; it has raised the minimum wage for frontline employees and offered more flexible scheduling and possibilities for upskilling. In order to control expenses, businesses are progressively investing in labor-saving technology, like mobile payment methods and self-checkout systems, which enable fewer workers to serve a larger number of clients.
Employee Empowerment and Labor Union Movements: Companies have been forced to reevaluate their labor practices due to the growth of labor union movements, especially in the retail industry. Protests and strikes have occurred at corporations like Starbucks and Amazon as a result of workers' demands for improved working conditions, job security, and benefits. Retailers are being forced to reconsider their employee engagement initiatives as a result of this surge of employee activism.
Figure 2: Expected Retail Technological Growth
Figure 3: Average Hourly Retail Wage of Labors Across Different Countries (2023)
Figure 4: Generative AI will Transform Work Across Industries (Worldwide) - 2022
Technological Advancements Shaping Retail
The whole shopping experience—from product discovery to checkout and delivery—is impacted by technology, which is arguably the most disruptive factor in the retail industry today. In order to improve consumer experiences, expedite processes, and address labor shortages, retailers are increasingly utilizing innovative technologies.
Omnichannel retailing and e-commerce: Retail has changed dramatically as a result of the growth of e-commerce, which is fueled by consumer demand for convenience. Nowadays, customers anticipate a flawless shopping experience across all platforms, including mobile apps, internet retailers, and physical locations. To satisfy this need, retailers have adopted omnichannel strategies, combining their online and offline platforms to offer a more convenient and individualized shopping experience.
Figure 5: Click & Collect (Source: IONOS)
For example, a developing trend is the emergence of "click-and-collect" services, which allow customers to place online orders and pick them up in-store. By integrating their inventory systems across all channels, companies like Target and Best Buy have benefited from this trend by enabling customers to make purchases online and conveniently pick them up, thus enhancing the whole shopping experience.
AI and Automation: In order to enhance inventory control, pricing tactics, and customer service, retailers are progressively integrating artificial intelligence (AI) and automation into their business processes. Retailers can optimize their product offerings and make real-time price adjustments thanks to AI-driven systems that analyze consumer data to forecast purchasing habits.
Walmart, for instance, reduces stockouts and surplus inventory by using AI to forecast changes in demand and improve inventory management. Chatbots with AI capabilities are also being employed in customer support, which enables merchants to efficiently answer consumer questions while lowering the need for human labor.
Smart Stores and IoT Use: Smart technology and Internet of Things (IoT) devices are improving the in-store shopping experience. IoT integration is being used by retailers to assess consumer behavior, optimize operations, and keep an eye on stock levels in real time. Sensor-equipped smart shelves can notify staff members when inventory needs to be replenished or when customers are interacting with products, giving businesses information that supports data-driven decision-making.
Amazon's "Just Walk Out" technology, which is utilized in Amazon Go stores, is a prime example. This system tracks the movements and purchases of customers using a combination of deep learning algorithms, sensor fusion, and computer vision. Without ever having to complete the checkout procedure, customers can enter the store, select the things they desire, and then walk out.
Figure 6: Amazon's "Just Walk Out"
Augmented Reality (AR) and Virtual Reality (VR): These technologies are transforming the way consumers interact with goods. While VR offers immersive experiences for product testing and shopping, AR enables customers to see things in their homes before making a purchase.
Before making a purchase, buyers can now see how furniture will look in their homes thanks to IKEA's effective integration of augmented reality into their smartphone app. This improves the buying experience and lowers uncertainty, which increases customer satisfaction.
Figure 7: IKEA’s Augmented Reality
The Global Dynamics of Labor Economics and Technology in Retail
India: A Blend of Inexpensive Labor and Advancing Technology
Cities like Bangalore, Delhi in India, combine developing technology with reasonably priced labor, enabling merchants to integrate tech-driven solutions and hire a large workforce. Retailers like Big Bazaar and Reliance Retail, for instance, employ a lot of people to help with tech features like self-checkouts, manage inventory, and provide customer support. They also utilize augmented reality and AI-powered recommendations to test new products.
High employee-to-customer ratios can be maintained economically despite technology developments because of the reliance on cheap labor. In contrast, automation and fewer employees are increasingly prevalent in labor-intensive regions like Europe.
Figure 8: Big Basket
Europe: The Rise of Automated Retail
The trend toward fully automated retail in Switzerland, where AI-powered checkout systems, smart shelving, and cashier-less stores are becoming more prevalent, is being driven by the country's high labor expenses. Leading this trend are retailers such as Migros and Coop, who provide outlets where customers may pay using facial recognition or smartphone apps and scan things, doing away with the need for staff. On the other hand, retailers continue to use human employees to run stores in nations like India, where labor is cheap, making automation less practical from an economic standpoint. This demonstrates how labor costs affect how technology is adopted in various geographical areas.
The Consumer Demand for Choice and Customization
Globally, customers are looking for more individualized purchasing experiences, particularly Millennials and Gen Z. Businesses like Fabric satisfy the need for uniqueness by allowing clients to create personalized goods. Personalized products become popular on social media, which intensifies this trend.
Shops like Printo provide on-demand printing and personalized products, enabling customers to readily personalize items online in India, where labor costs are low and tech use is growing. As Indian consumers embrace technology for a more personalized shopping experience, these inventions reflect the growing demand for distinctive, customisable items.
Drone Deliveries: A Cost-Benefit Dilemma
Drone deliveries might not be economical in nations with cheap labor, such as India. Because four humans might perform the same task as one drone, BigBasket and Flipkart, for instance, rely on human delivery workers for efficiency. However, businesses like Amazon and Zalando are implementing drones to lessen their reliance on costly human labor in labor-intensive regions like Europe, where automation becomes more economically viable. This change emphasizes the necessity of striking a balance between the advantages of tech-driven logistics and personnel costs.
Figure 9: Drones competitiveness with other transportation (Source: McKinsey & Company)
Conclusion
The worldwide shopping experience is changing as a result of the retail revolution brought about by labor economics and technology. Technology is changing how retailers operate, from automation in fulfillment centers to AI and AR-enabled individualized customer experiences. Businesses are being forced to reconsider their workforce strategy and adjust to the new demands for equitable pay, flexibility, and empowerment as a result of the shifting labor landscape.
Future retail is expected to be more customer-focused, responsive, and efficient as a result of the convergence of these two forces. In a market that is becoming more dynamic and tech-driven, retailers who adapt to these changes will not only remain competitive but also prosper.
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