Presentation to the Productivity Hub in December 2013 by Ron Crawford, of work contributing to the inquiry boosting productivity in the services sector. For more information see www.productivity.govt.nz

1. ICT and productivity in the retail & wholesale industries
December 2013

2. Outline
• ICT has enabled a revolution in retail and wholesale
• Walmart & the US retail and wholesale shake-out
• Europe & the UK trailed the US – why?
• NZ retail and wholesale compared to Australia
• NZ retail and wholesale developments
• NZ barriers?

3. ICT in retail and wholesale industries
• 100s of millions of retail transactions per day in US alone
• ICT allows:
–
–
–
–
Real-time tracking of inventories & supply
International integration of supply chains
Data analysis to improve purchasing, pricing and promotion
Automating in-store processes
• Store and firm level economies of scale
• Complementary investments

4. The US retail story is a Walmart story
•
Contribution to labour productivity growth in US general merchandise
•
Prices 10% lower than competitors
•
Early adopter of ICT
•
Expansion strategy
•
Scale, cost and technology interactions.
•
4,000 stores and 1.3 million employees in the US
•
15% of consumer good imports from China (2007)
•
6.5% of US retail sales (2004)

5. Retail chains & market dynamics
• Retail contributes 11% of aggregate US LP growth 1993 – 2000
• 95% of labour productivity (LP) growth in US retail due to entry of
more productive and exit of less productive stores 1987-1997
• Firm size increased, numbers of single-store firms fell
• Learning and vintage effects
• Massive reallocation of labour and capital
• Similar dynamics in Canada

6. Europe & the UK lag the US
• Europe & UK retail labour productivity levels lower than the US
• Slower adoption of new technologies due to:
 Later transport deregulation (Europe)
 Smaller markets (geography, culture, language, border effects)
 More restrictive labour market regulation (Europe)
 Restrictive land-use regulation (e.g. UK, Denmark)
 “Americans do IT better” - People management practices

7. NZ retail & wholesale compared to Australia
100
90
80
70
60
50
40
30
20
10
0
5.0%
NZ relative to AUS = 100
4.5%
Labour Productivity
3.0%
Machinery &
equipment
Buildings
Retail
4.0%
3.5%
Capital
Wholesale
LP growth rates 1997-2008
2.5%
Aus
2.0%
NZ
1.5%
1.0%
0.5%
Trans, P & W
0.0%
Wholesale
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Share of A-NZ LP gap
Market industries
Wholesale
Retail
Transport, P & W
Retail
Trans, P & W

8. New Zealand developments
• Rise of The Warehouse
• Role of Australian chains (e.g. Woolworths, Bunnings)
• Rise of malls (e.g. Sylvia Park)
• Costco, IKEA absent
• Rise of online shopping
• Retail store and firm size growing(1997-2012)
• Wholesale store and firm size growing (2000s)

9. Industry share of aggregate NZ LP growth & GDP 1996-2011
(average aggregate annual LP growth = 1.4%)
12.0%
10.0%
8.0%
6.0%
LP growth
GDP
4.0%
2.0%
0.0%
Wholesale
Retail
Trans, P & W

10. Retail stores per firm 1997 - 2003
(Firms with 0-5 employees excluded, ANZSIC96)
Source: Statistics New Zealand
1.35
1.30
1.25
1.20
1.15
1.10
1.05
1997
1998
Retail total
1999
Food
2000
Personal & household
2001
2002
Motor vehicle
2003

11. Retail stores per firm 2000 - 2013
(Firms with 0 employees excluded, ANZSIC06)
Source: Statistics New Zealand
2.00
1.90
1.80
1.70
1.60
1.50
1.40
1.30
1.20
1.10
1.00
2000
2001
2002
2003
Retail total
2004
2005
2006
Motor vehicle
2007
Fuel
2008
2009
Food
2010
Other
2011
2012
2013

12. Ratio of inventories to output – retail and wholesale trade
(LHS Australia – source APC 2000; RHS New Zealand – source Statistics NZ)
3
New Zealand
2.5
2
1.5
1
0.5
0
19841986198819901992199419961998200020022004200620082010
Retail
Wholesale
Total

13. Barriers to ICT in NZ retail & wholesale?
• Market scale
• Less intense competition
• Internal geography and infrastructure – effects on distribution networks
• Land-use regulation (e.g. IKEA experience)
• Entry barriers – eg to FDI?
• Labour market regulation – NZ relatively flexible