Productivity in the retail sector is critical for understanding the relative success rates of national economies.
For example, India’s antiquated retail sector has yielded bizarre market distortions. “In India, the price of ready-made shirts from domestic manufacturers is about 35% higher than the price of a tailor-made shirt,” Lewis says. “The manufacturing cost of the shirt is about the same as the tailor-made price. However, the manufactured shirt has to get to the consumer. In India, that’s a huge problem because of the undeveloped retail sector.”
Lewis points out that productivity gains in retailing have dynamic effects throughout a nation’s economy. For example, when most Americans and others think of the drivers of the US economic performance, they immediately think of successful tech firms such as Microsoft and Intel, or innovative financial services players such as Goldman Sachs. However, it is efficiency gains in the retailing sector that powered much of America’s economic performance in recent years.
“Evolving to a more productive retail format mix,” Lewis says, “has large spillover effects in improving the productivity of consumer goods manufacturing and wholesaling.” The effect is enormous. Improvement in US retailing “was the single largest contribution to productivity acceleration in the US economy in the late 1990s,” he says. It trumped that of even the much-heralded Silicon Valley.
How is this possible? Lewis points out that “large-scale retailers improve their efficiency in part by buying in bulk from efficient, large-scale manufacturers. Thus, world-class British supermarkets, Carrefour and Wal-Mart have worked with suppliers in many countries to increase their scale of operations…” These efforts have “improved productivity significantly in the manufacturing sector itself”. What’s more, Lewis continues, “world-class retailers have reached a scale that allows them to bypass the wholesale sector and buy directly from manufacturers. This...has put enormous pressure on wholesaling to improve its performance.” Thus, greater efficiency in retail yields greater efficiency and productivity in sectors such as manufacturing and wholesaling. These beneficial spillover effects can be further found in transportation, agriculture, textiles and more.
The latest mixed-bag of news for retailers hails from cyberspace: holiday e-commerce sales were robust, but showed their slowest-ever growth, industry analysts projected.
The sales growth of 19 percent, while enviable for traditional retailers, was down sharply from the 25 percent to 30 percent growth rates of recent years. Retail industry analysts said the deceleration underscored a tight economy, but also reflected changing consumer and retailing habits.
And it is consistent with a broader slowdown in the growth rates for Internet retailing — making the holidays of 2007 a vivid example of the changing growth curve for online sales.
When the receipts are tallied from this holiday, American consumers will have spent around $29.5 billion at Internet shops, according to projections published by comScore, a market research firm. “The growth rates for previous years were clearly much higher,” said Andrew Lipsman, spokesman for comScore. The research firm did not have growth rates before 2003, but Mr. Lipsman suspected that they were 25 percent or more.
Next year will witness the spread of RFID applications into familiar, everyday settings, while consumer electronics, wireless technologies and security requirements will continue to benefit from the integration of RFID.
After years of being trumped by Target on holiday sales, giant retailer is poised to come out on top. Analysts point to more effective marketing and pricing.