The future of retail

The COVID-19 crisis may be a catalyst for the transformation of work, write Felix Sieker and Anke Hassel.

Six weeks into the COVID-19 pandemic, the German department store chain Galeria Karstadt Kaufhof announced it would close up to half its stores, resulting in the loss of up to 5,000 jobs. Galeria Karstadt Kaufhof had been struggling for years and was severely hit by the lockdown, as most of its revenue is still generated by its physical stores. Other retail chains face similar challenges, prompting the largest German retail employer association HDE to announce that it expects up to 50,000 bankruptcies in the upcoming months. However, the coronavirus crisis and the ensuing lockdown are not the cause of difficulties that large parts of the retail sector are facing, but rather a catalyst.

Most big retail chains reacted too late and failed to adapt their business models to the challenge of the rise in e-commerce and the digital transformation of the retail sector. Only a few retail chains, such as the German mail order company Otto, succeeded in the digital transformation and established themselves as multi- or omnichannel retailers, selling their products across multiple physical and digital channels. Many others were far too complacent or unable to invest heavily in online retail and digital tools in order to compete with e-commerce competitors.

The biggest winners of the corona crisis are platform firms, such as Amazon or Zalando, who increased their revenue in the first quarter of 2020 by more than 10%. Both companies are succeeding because they thrive on network effects. The quality of services from these platform firms increases with the number of users and vendors, as range and speed of delivery are based on scale. Moreover, the enormous amount of data on customers and vendors allows an anticipation of sales and efficient warehouse organisation. On top of that, these companies not only enable transactions, but also occupy larger parts of the retail value chain, such as logistics or payments operations, which makes it increasingly difficult for competitors to enter or stay in the market. The consequences of the surge of these platform firms for the world of work are substantial.

First, platform firms engage in an employment model that is known as Uberization. Instead of offering standard employment contracts, workers are increasingly hired for specific tasks. In order to assure a sufficient quality of the provided services, workers are monitored via technological tools. This employment model constitutes a further push towards a more commodified and individualised form of labour. For instance, Amazon experiments with self-employed drivers for its logistics operations or hires microtask workers to monitor its website via platforms such as task reddit.

Second, these platform companies break with the German model of social partnership, as they have a particularly hostile position towards trade unions and reject collective agreements. Again, Amazon management refuses to negotiate collective agreements.

One major outcome of the coronavirus crisis can be seen in a further market concentration and the subsequent dissemination of a new employment model. As in particular those retailers that offer standard employment contracts and are bound by collective agreements are at risk of bankruptcy, the voluntary nature of the social partnership model might not be sufficient to ensure fair working conditions in the retail sector. The result will be a higher polarisation of work, between precariously employed workers in the logistics sector and high-end boutique shops.

These developments are not set in stone, but can be shaped through policies. The e-commerce sector affects traffic in urban areas and depends on public infrastructure. Algorithmic surveillance of warehouse and logistic workers can, and must, be regulated, and working conditions monitored. Local communities – urban and rural – should protect decentralised and local retail structures in order not to become dependent on e-commerce giants. The pandemic provides an opportunity to discuss the future of shopping – not only to save jobs for Kaufhof workers.