“The Great Resignation” has suddenly come to the forefront. Economists and political commentators are using it broadly to make a variety of points about business, labor conditions and society at large. This can be confusing, however, as many people are trying to use the newly-emerging concept to push their own preferred narrative.
So let’s start at the root. What is the Great Resignation? Simply put, it’s the large number of people that left their jobs since the beginning of the Covid-19 pandemic.
There are countless folks that were let go due to the pandemic and have been slow to seek out new work since businesses began to reopen. Adding to that, many workers voluntarily quit their jobs this summer and fall after seeing how many other, better opportunities are out there. A record 4.4 million Americans quit their jobs in September alone.
As if that weren’t enough, organized labor is showing some backbone. After years of being a virtual non-presence, the movement has mounted some high-profile strikes this year. Additionally, union organizing efforts are underway elsewhere. Add it all up, and companies have to handle their workforce issues carefully or risk facing a profit squeeze.
These seven stocks to sell could be particularly impacted as the Great Resignation accelerates:
- McDonald’s (NYSE:MCD)
- Dollar General (NYSE:DG)
- Deere & Co. (NYSE:DE)
- Starbucks (NASDAQ:SBUX)
- Walmart (NYSE:WMT)
- Amazon (NASDAQ:AMZN)
- Warrior Met Coal (NYSE:HCC)
Great Resignation Stocks: McDonald’s (MCD)
McDonalds is one of the nation’s largest employers. It is something of a rite of passage; so many teenagers got their first job flipping burgers at the Golden Arches.
That’s becoming a problem for McDonald’s, however. The number of workers — teenagers and otherwise — willing to take uncomfortable low-wage jobs has declined sharply since the pandemic. In a booming labor market, a fast food restaurant is going to have to offer much more competitive benefits to attract workers.
McDonalds is offering higher employee pay to try to bridge the gap. Still, it is struggling with the issue. On its most recent conference call, the company reported it expects U.S. prices to rise 6% on average to deal with rising labor costs and commodity prices.
6% may not be quite the headline it used to be, given the general inflation pressures everywhere. However, it’s a big deal for a company like McDonalds, whose main competitive advantage is its low-priced food.
This past quarter, McDonald’s announced it is working with IBM (NYSE:IBM) to automate its drive-thru lanes. This would make the company less reliant on labor altogether.
That could be an optimal long-term solution. In the meantime, however, McDonald’s could take a big hit from its employment situation.
Dollar General (DG)
Dollar General is a perfect example of the Great Resignation. A job at a dollar store is unlikely to be someone’s dream career. Retail is often thankless work anyway, and dollar stores can be particularly stressful.
Budget stores are now under particular strain thanks to supply chain problems. Notably, a store focused on keeping prices at rock bottom is going to suffer more in an inflationary environment than one that can raise its prices.
CFRA’s analyst Arun Sundaram downgraded DG stock in August, citing a mix of factors. On the cost side, inflation in both wages and the cost of goods sold is hitting Dollar General.
Meanwhile, the expiration of pandemic-related stimulus and unemployment payments has caused Dollar General’s core clientele to have less spending power. Be careful with firms that enjoyed strong Covid tailwinds, as many of those momentum plays are starting to reverse course.
Great Resignation Stocks: Deere & Co. (DE)
Deere isn’t in the retail or restaurant business. It’s a manufacturing firm that has much better paid employees on average. So it should be less vulnerable to the Great Resignation, right? Wrong.
In fact, John Deere has become a focal point in the struggle between labor and big business. Led by the United Auto Workers (UAW), employees went on strike on Oct. 14. It came to a head after months of negotiations failed to reach an agreement. 10,000 employees went on strike at 14 different locations.
The UAW and strikers said it was unfair that while Deere was earning record profits, it refused to pay workers more. John Deere offered workers a better contract on Nov. 2. But the strikers voted that down as well, demanding further concessions like an end to a controversial two-tier pay system.
Yesterday, the strike came to an end when union workers agreed to a deal with management. The six-year agreement includes a total wage increase of 20%, an $8,500 signing bonus and more retirement options.
However, Deere’s recovery won’t be overnight. Additionally, nearly 40% of the union’s members did not vote in favor of the agreement, indicating not everyone is satisfied with the results.
This has come at a terrible time for DE stock. Shares are down 10% since this spring, even as agricultural prices have shot up. Deere should be selling tons of equipment right now. Instead, it is struggling to fulfill orders with so much of its workforce out of action. Furthermore, the example at Deere may set the stage for other strikes at industrial firms across the country.
Starbucks is another prominent firm facing labor issues. The coffee giant has long prided itself on being a non-union shop. Starbucks was well ahead of the restaurant crowd in terms of giving employees good benefits and a career path instead of just being a menial job. That kept Starbucks in a good place for many years.
Now, though, labor organizers are taking aim at Starbucks. Workers are voting to unionize stores in the Buffalo, New York area.
If the vote is successful, only three stores will be unionized initially. However, it could give many other Starbucks workers the courage to start their own efforts to organize as well.
Prior to the pandemic, Starbucks’ existing benefits and salary package was good enough to keep a quality labor force. However, it seems that even Starbucks may have to raise the standard going forward. If not, it could find itself dealing with an increasingly powerful union on the other side of the table.
Great Resignation Stocks: Walmart (WMT)
Walmart is another firm that finds itself in the same sort of territory. The company has long moved heaven and earth to keep its stores union-free.
On some occasions over the years, Walmart workers have tried to unionize. However, the company has allegedly taken decisive action — such as closing stores entirely — to keep the union threat at bay.
However, Walmart will likely have to raise wages substantially to keep its employees happy. It’s no secret that other retailers like Costco (NASDAQ:COST) have a better workplace culture and thus have much higher employee retention rates.
Before the pandemic, Walmart didn’t have to pay that fact too much heed. It was often the only major employment option in town, particularly at its more rural stores.
Given the new labor market reality, however, Walmart will likely have to raise its compensation packages. The move could ding its already-thin profit margins.
Amazon is another big retailer facing big problems from labor shortages. Look no further than the Q3 earnings report if you need evidence of that. Amazon came up well short of earnings expectations on multiple fronts.
The biggest factor, however, was the retail business underperforming. Costs escalated sharply in various areas, including labor. Meanwhile, the company had some issues with product availability and fulfillment. These are the sorts of issues that crop up when it is hard to keep the labor force at 100% staffed up and satisfied.
While Amazon caved to demands from Senator Bernie Sanders and others and raised wages, the hits keep coming. Recently, the New York Times revealed new details about how Amazon allegedly has been short-changing new mothers from their rightful wages.
The Times investigation detailed widespread problems with Amazon’s accounting that caused workers on leave to not receive their proper amount of pay. That’s just one more black mark against a company that has become a face for worker injustices.
Amazon’s founder, Jeff Bezos, has not helped matters. After his flight into space, Bezos infamously said, “I want to thank every Amazon employee, and every Amazon customer, because you guys paid for all this.”
That’s the sort of callous, tone-deaf approach Amazon has taken to labor relations in general. And with workers now demanding better, Amazon could face a challenging situation in pleasing its labor force.
Great Resignation: Warrior Met Coal (HCC)
Deere isn’t the only company that has faced a large strike recently. Warrior Met Coal is another firm dealing with active labor unrest.
For those unfamiliar, Warrior Met Coal is the new name for assets of Walter Energy, which previously went bankrupt. Warrior Met Coal operates mines in Alabama.
In April, more than a thousand Warrior Met workers went on strike. They claimed a long history of poor worker relations at the firm. In particular, they bristled at not receiving pay raises over the past few years while executives earned sizable bonuses. Warrior Met reportedly offered a $1.50 per hour wage increase, but this wasn’t enough to satisfy workers.
In July, striking workers went to New York City and picketed outside the offices of institutional investors that owned HCC stock. In a world focused on environmental, social and governance (ESG) investing, this sort of direct labor action could persuade investors to steer clear of companies that don’t pay their workers well.
In any case, the strike remains ongoing. In its most recent conference call, Warrior Met disclosed that it has lost millions directly as a result of the strike. It has also curtailed production at some of its mines. Like Deere, it will be interesting to see if this labor action drives workers at other mines across the country to strike as well.
On the date of publication, Ian Bezek held a long position in IBM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.