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...