The Lipstick & Underwear Indexes: Exploring the Contradiction of Retail Closures and Increased
17 May 2023
Recent headlines about retail stores closing across the country seem to paint a grim picture for the industry, but the reality is more complex when considering the simultaneous increase in retail job postings. While it’s true that many brick-and-mortar retailers have either exited the market or declared bankruptcy in the past few years, the data on retail jobs and postings indicates that the retail sector is growing, with retailers ramping up their hiring efforts. So why the disconnect between the data and the headlines?
Retail sales are an important economic indicator, that are used as signals of whether an economy is contracting or expanding. An increase in retail sales usually signals a healthy economy that’s expanding while a decrease is a red flag to economists.
A compelling example of how retail & economic health interact are two different indicator indexes: the lipstick index, coined by Estee Lauder’s Leonard Lauder and the Men’s underwear indicator index. The lipstick index is the theory that sales of affordable luxuries rise in economic downturns while the men’s underwear index posits that men’s underwear sales drop when the economy is suffering a slump.
Retail sales in Canada and globally were plunged into chaos since the Pandemic hit in 2020, highlighting supply chain issues, staffing difficulties, inventory management challenges and created an entirely new landscape to survive in – both in brick & mortar stores and online.
The retail sector in Ontario has not been immune to the global trends and has also become a microcosm of the confusing contradiction of retail in the labor market: there have been brick and mortar closures of retail stores, both big box and smaller chains while simultaneously the retail trade is continuously the top hiring sector in the labor market.
Nordstrom recently announced it planned closures of 13 stores in Canada, J. Crew filed for bankruptcy protection in 2020 and began closing its Canadian locations, Sears, Bed, Bath & Beyond, the Gap and its sister chain Banana Republic, Disney stores in almost all of its 18 retail stores across Canada, David’s Tea, Frank & Oak, the Children’s Place, Reitman’s, Aldo, and Bench – all either exiting or have planned exits by 2023 from the Canadian marketplace.
So, then how is retail trade still the top hiring sector? Economists often get it wrong, assumptions about a free market are known to be a little wonky, customers aren’t rational profit maximizers but that’s not really the full story. When I look at my own consumer behavior, it’s clear my own shopping behavior has massively changed with the pandemic: I buy less, I buy online, I buy more thoughtfully. The shift to e-commerce can partly explain the decline but only in brick & mortar retail – which highlights a funny little quirk in how we or I at least, think about retail and why this decline but simultaneous increase in job opportunities seems so contradictory. I tend to think of retail the way it’s often advertised: clothing and accessories, not grocery stores, hardware stores, furniture stores, telecommunications store etc. Those are all retail too.
The decline in retail sales is primarily in the clothing sector, which reflect the stores which are exiting the market – but they aren’t the whole retail sector. I also forget that retail jobs aren’t only sales associates or in brick & mortar locations: there are the roles beyond sales that are also in the retail sector when reporting; e-commerce, supply chain, customer service, inventory and stock management, supervisors, IT, HR etc. as well as wholesalers, distributors, and manufacturers. So, there isn’t necessarily a contradiction in the retail sector, but instead a necessary expansion of what retail generally implies in our consumer mindset.
It boils down to adding the other half of the equation into the picture for me: clothing retailers have been exiting or closing brick & mortar stores in an increasingly hostile landscape, yes. However, grocery stores, hardware stores, furniture & telecommunication stores like Bell/Rogers/Freedom Mobile etc. have all been steadily growing, thus growing the occupational demand for retail services.
I ran some job posting reports to test that hypothesis and they confirmed it. The top hiring sector in Toronto is retail and the top occupations are retail salespersons, retail/wholesale trade & retail sales supervisors. However, there’s still more: of the top retail employers, clothing, and accessories accounts for 10% of active job postings, while grocery, hardware & telecommunication stores account for a whopping 71%; all essential consumer goods. Overall, the retail sector is significantly more diverse in practice than in the theoretical one that lives in my and I suspect, a lot of our heads– clothing/accessories, which also gets a disproportionate amount of media attention. It makes absolute sense then that while that one part of the retail trade experiences contractions, the other burgeoning retailers that carry essential consumer goods like grocery stores and markets, home hardware and electronics stores experience consistent growth and along with that growth, continual demand for labor making it the top hiring sector.
While the closure of physical stores may seem like a harbinger of doom for the retail sector, the reality is more nuanced. The pandemic caused many physical retailers to shutter while simultaneously shifting significant growth to e-commerce and changing the preferences of consumers in the process. The lipstick and underwear indexes, which have shown a steady increase in sales, show that despite the challenges faced by brick-and-mortar stores, essential consumer goods and affordable luxuries are still strongly in demand, leading to a surge in hiring. The industry is responding to rapid-fire changes in the retail landscape and like many sectors, will have supply and demand issues in relation to employment and work.
