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1RetailtradeSUMMARYRetailtradecontributednearlyone-fourthoftheeconomy-wideproductivitygrowthjumpfrom1987-95to1995-99(0.31percentagepointsofthe1.33percentagepointtotal).Understandingretailisthuscriticaltounderstandingtheeconomy-wideaccelerationinproductivitygrowth.Whenanalyzingthissector,theMcKinseyGlobalInstitutefocusedindepthongeneralmerchandiseretailing.MGIalsoconductedfocusedanalysestounderstandtheproductivityimpactoftherapidaccelerationintherealvalueofcomputersandtheemergenceoftheInternetasasaleschannel.Ingeneralmerchandise(representing16percentofthetotalretailproductivitygrowthacceleration),wefoundthatWal-Martdirectlyandindirectlycausedthebulkoftheproductivityaccelerationthroughongoingmanagerialinnovationthatincreasedcompetitiveintensityanddrovethediffusionofbestpractice(bothmanagerialandtechnological).Wealsofoundthatexternaldemandfactorscontributedmeaningfullytotheproductivityacceleration,asconsumersspentanincreasingportionoftheirincrementalincomeonhigher-valuegoods(e.g.,decidingtopurchaseamoreexpensiveshirtratherthanalessexpensiveone).Bycontributingoverwhelminglytotheproductivitygrowthjumpingeneralmerchandiseretail,Wal-MartdemonstratestheimpactthatmanagerialinnovationandeffectiveuseofITbyindividualfirmscanhaveonmarketstructure,conduct,andperformance.Beyondgeneralmerchandiseretail,MGIfoundthatrapidinnovationinsemiconductorsandcomputerassemblysignificantlybenefitedtheretailsector,asretailerspassedthroughcomputersofincreasingqualitytoconsumers(computersalesareincludedinthefurnitureandconsumerelectronicssector).Over6percentofthetotalproductivityjumpinretailtradewasduetothe1995-99accelerationincomputerqualityandperformance.(Thisjumpcouldthusarguablybeaccreditedtotheoriginatingindustries.)Inaddition,theemergenceoftheInternetasasaleschannelhadasmallbutpositiveimpactonretailproductivity,contributingroughly2percentofthetotalretailproductivitygrowthjump.2MGIalsofoundthatconsumersubstitutiontohighervaluegoodsplayedasignificantroleintheretailsectorasawhole,contributing0.14percentagepointsoftheoverall0.31percentagepointjump(thissubstitutionseemstobelargelyduetoincreasesinconsumerwealthandincomeratherthanmoreeffectiveeffortsbyretailerstochangeconsumerbehavior).Ingeneralmerchandiseretailandfurniture(thesectorwherecomputersaresold),atleasthalf(0.04percentagepointsoutofthe0.09percentagepointcontributiontotheeconomy-wideproductivityjump)oftheproductivityaccelerationislikelytobesustainableoverthenext5years.The0.01percentagepointcontributionoftheemergenceoftheInternetasasaleschannelisalsoexpectedtobesustainable.Althoughtheremainderofretail(whichcontributed0.21percentagepointstotheeconomy-wideproductivityjump)wasnotexaminedindetail,MGIdeterminedthatanadditional0.03percentagepointswasduetotheemergenceof“categorykillers”(i.e.,playersthataresignificantlymoreproductivethanaverageandquicklygrowingshare)andislikelytobesustainable.Combiningtheseresults,MGIthusfindsthatatleast0.08andatmost0.31percentagepointsoftheeconomy-wideproductivityjumpislikelytobesustainableoverthenext5years.3INTRODUCTIONBecauseofbothitslargesizeanditslargejumpinlaborproductivitygrowth,retailtradecontributednearlyone-quarteroftheeconomy-wideproductivitygrowthjump.MGIfocuseditsanalysesinretailonanin-depthstudyofthegeneralmerchandisesubsectorandtwoothertargetedanalysesthatwereusedtodeterminetheimpactofthesaleofhigher-valuecomputersandtheemergenceofbusiness-to-consumerInternetsales.ImportanceofretailtradetotheoverallquestionRetailtradecontributed0.31percentagepointstotheoverallUSproductivityjumpof1.33percentagepoints,asmeasuredbyMGI.1Thisisthelargestcontributionofanysectorintheeconomyapartfromwholesaletrade,whichcontributed0.37percentagepoints(Exhibit1).¶ThemaincontributionofretailtradetotheaggregateUSproductivitygrowthjumpcamefromwithin-sectorproductivitygrowthratherthanfromshiftsinemploymentsharebetweensectors.¶OverthetimeperiodexaminedbyMGI,retailtradeincreaseditslaborproductivitygrowthrateby4.3percentagepoints(from2.0percentto6.3percentperyear,1987-95versus1995-99).¶Thesector’sITcapitalintensitygrowthrate2hasacceleratedsubstantiallyinrealterms(a12.6percentagepointaccelerationinannualgrowthrates,1995-99versus1987-95),reflectinginparttheincreasedcapabilityandqualitythatagivendollarofITspendingrepresents(Exhibit2).ProfileofretailtradesectorRetailtraderepresents11percentofprivatesectoremploymentand7.7percentoftotalvalueadded(GDP)intheUSeconomy.ThismakesitthelargestsectorstudiedbyMGI(Exhibit1).1TheBureauofEconomicAnalysis(BEA)calculatesvalueaddedonlyforretailtradeandrestaurantscombined.MGIusestheBEAmethodologytocalculateproductivityforretailtradealoneandforsevensubsectorsofretailtrade.Thedatausedwhencalculatingretail’scontributiontotheoverallproductivityjumpincludesrestaurantsandthusarrivesatadifferentcontributionthanthatpresentedhere(0.34percentagepointsratherthan0.31).2DefinedasrealITcapitalperemployee.AsITcapitalintensityisonlyavailableforretailandrestaurantscombined,combinedfiguresarepresentedhere.4Retailtradeconsistsof7subsectorsthatvarywidelyintermsofbot