Labor Productivity in the Retail Trade Industry, 1987-99: Faced with Fierce Competition, Consolidation, and Increased Demand, the Industry Experienced Strong Growth in Labor Productivity over the Period, Partially Due to Increased Investments in Information Technologies. (Productivity in Retail Trade)

Article excerpt

Retail trade employed 22.8 million persons in 1999 and generated sales of nearly $3 trillion. The large size of the retail sector results in a high degree of interest in monthly and especially holiday retail sales and makes the performance of this sector important to the overall health of the U.S. economy. In addition, it has been suggested that "the retail sector ... is particularly important in creating jobs for groups with high unemployment levels, employing relatively large numbers of women, young people and the people with little education. It is also a major provider of part-time work." (1)

The retail sector is a competitive and dynamic part of the U.S. economy. Retail stores offer goods bundled with services such as store location, product assortment, timely delivery, product education, and store ambience. (2) Differing retail store formats have evolved offering varying degrees of these services. (3)

Output and labor productivity in retail trade experienced strong growth over the 1987-99 period. Strong demand for retail products corresponded with gains in labor productivity. (See chart 1.) In addition, growth in retail square footage far exceeded population growth over the period. (4) As a result, the industry has been faced with overcapacity of retail space, which in turn has led to continued fierce competition, consolidation under large corporations, and increasing bankruptcies and liquidations. (5)

[GRAPHIC OMITTED]

A long-term trend in retailing that began well before 1987 and continued into the 1990s was increased concentration. The proportion of sales accounted for by the largest 50 firms and the largest 4 firms increased in nearly all retail industries between 1977 and 1997. (6) Stores belonging to chains became more dominant in the industry, and the growth in chain stores was accompanied by growth in investment in information technologies, largely due to the widespread use of Universal Product Codes (UPC's).

UPC's are machine readable labels placed on product packaging containing a series of bars (bar codes) and numbers that provide information on the manufacturer, a description of the item, and its price. This technology allows retailers to gather data at the point of sale (POS) with laser-based bar code scanners. The information is then used to pinpoint markets and better manage inventories, UPC's were first used in the food store industry and quickly spread to general merchandising and eventually all segments of retail trade. (7)

The Bureau of Labor Statistics has maintained measures of labor productivity for all three- and four-digit Standard Industrial Classification (SIC) code industries in retail trade for several years. (8) In June, 2001 BLS published measures of labor productivity for the total retail trade sector, as well as for each of the eight major groups within retail, defined at the two-digit level of the SIC system.

Over the 1987-99 period, labor productivity for the total retail trade industry grew by an average annual rate of 2.0 percent per year, reflecting annual output growth of 3.4 percent and average annual hours growth of 1.4 percent. (9) During the second half of the 1990s, labor productivity growth for retail trade accelerated sharply. (See chart 2.) During the 1995-99 period, labor productivity increased at an average annual rate of 3.1 percent or about twice the increase seen during the 1990-95 period (1.6 percent). This pattern, to various degrees, also was evident in each of the two-digit SIC industries in retail, with the exception of apparel stores.

[GRAPHIC OMITTED]

Productivity in the total nonfarm business sector also experienced a speedup during this later period. One factor unique to retail trade during the 1995-99 period was an increased use of POS systems, which electronically link cash registers, laser scanning devices, and credit card processing machines with sophisticated software packages. …