Retail: The Wal-Mart effect; Information technology isn't the whole story behind productivity

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Date: Winter 2002
Publisher: McKinsey & Company, Inc.
Document Type: Company overview
Length: 1,077 words

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Retail may be the last place you would expect to find a productivity miracle. Left out of the technological and operational improvements that have transformed US manufacturing, this low-wage sector seems about as far from the new economy as you could get. (1)

Yet retail-productivity growth, as measured by real value added per hour, jumped from 2 percent (1987-95) to 6.3 percent (1995-99), explaining nearly one-quarter of the economy-wide acceleration in productivity. (2) To understand what happened in this large and diverse sector, we focused on general-merchandise retailers, which account for 15 percent of all retail sales. Just five of these retailers--Wal-Mart, Kmart, Target, Costco, and Sears--account for 60 percent of general-merchandise sales, a fact that makes it possible to conduct a company-level investigation into productivity. In addition, general merchandising is more productive and uses information technology more extensively than do other parts of retail trade, which may in time come to resemble it.

Two syllables

More than half of the productivity acceleration in the retailing of general merchandise can be explained by only two syllables: Wal-Mart. In 1987 Wal-Mart had a market share of just 9 percent but was 40 percent more productive than its competitors as measured by real sales per employee (the measure used for all company-level analyses in this study). A variety of Wal-Mart innovations, both large and small, are now industry standards. Wal-Mart created the large-scale, or "big-box," format; "everyday low prices"; electronic data interchange (EDI) with suppliers; and the strategy of expanding around central distribution centers. These innovations allowed the company to pass its savings on to customers. By 1995, it commanded a...

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Gale Document Number: GALE|A82535798