Employment was down by 0.8% compared to the same quarter in 2010 – the equivalent to 5,780 fewer full-time jobs, a new poll has found.
It was the sharpest quarterly fall the BRC-Employment Monitor has recorded since it began the annual comparisons in October 2009.
The decline in jobs was fuelled by non-food retailers with part-time workers registering the largest decline in hours worked.
British Retail Consortium (BRC) director general, Stephen Robertson, said: "With consumer spending now in recession and retail sales volumes declining, this is the biggest drop in overall retail employment in the two years since we began this survey.
"Redundancy rates are thankfully low but many retailers are not filling every vacancy.
"Uncertainty and fears about Christmas trading may also be leading retailers to delay taking on this year's seasonal staff - with that reluctance compounded by the new Agency Workers rules."
He urged the Chancellor to use his Autumn Statement to call for a moratorium on new employment regulation and restore confidence and job creation.
Respite from the poor employment performance came with the statistics the number of retail outlets had grown by 2.3%, creating an extra 1,134 shops.
Robertson explained: "Supermarkets' continued expansion into convenience store formats means food retailers are still adding new jobs but even that is slowing.
"This is all crucial evidence that imposing extra burdens on businesses doesn't come without costs.
"It results in fewer jobs in a sector which has previously been a consistent job creator."
Head of retail employment at business law firm Bond Pearce, Christina Tolvas-Vincent, added: "Retailers are being battered by the same economic conditions that have led to the highest unemployment rate for 17 years.
"Store numbers continue to increase but food retailers are almost entirely responsible for this and curiously the trend for them is towards more full-time job opportunities with part-timers' hours remaining almost flat.
"That could make things more difficult for those looking for flexible employment. Seasonal hiring from those parts of retailing that gain significantly from Christmas may provide some respite but this won't change the underlying weakness in the retail labour market."
By Andy Pearce