Introduction
The ongoing evolution of US retail
There are two explanations for what is happening in the retail sector: a prediction that retail sales will
migrate online and physical retail will be virtually extinguished, and a prediction that future shoppers
will be heading to giant physical stores.
The many definitions of ‘retail’ have important commonalities. First, retail sells merchandise or goods:
physical objects and digital items. Second, it sells them without transformation.
Retail sells goods as opposed to services. Goods consumption as a share of the economy has seen a
long-run decline. But relative to total goods consumption, retail has not been shrinking over the long
run.
The fact that the retail sector’s value-added share has been consistently smaller than its employment
share indicates that value added per employee (measure of labor productivity) is lower in retail than
in the economy overall. This difference in labor productivity is reflected in part in an average earnings
gap between retail and the overall economy.
Within-store productivity growth accounts for a relatively minor portion of sector wide productivity
growth in US retail. Instead, the reallocation of activity across stores drives most of the gains in
overall retail productivity, which in turn occurs both through the entry of new, more efficient firms
replacing a set of less-efficient existing ones, as well as through successful firms adding new stores.
The productivity levels and growth rates of retail establishments are correlated with their rates of
investment in information technologies.
While it is unclear whether these relationships between technology, management, variety and
productivity are causal, the patterns do suggest possible channels through which productivity shapes
the success and survival of retailers. While many of these productivity drivers involve digital and
other information technologies, they are as likely to operate on the back-end of retail as on the
customer-facing front-end.
The combination of productivity gains and drops in labor compensation has reduced the sector’s unit
costs. These cost drops have been captured by two parties: consumers pay a lower retail margin on
goods they buy, and payments to the sector’s capital holders have risen.
The vast majority of retail e-commerce sales occur in the Electronic Shopping and Mail-Order Houses
industry (ESMOH). The three product categories that account for the most online retail sales by
ESMOH are clothing, accessories and footwear. The remaining 15% of online retail sales are made by
establishments whose primary activities are physical in nature.
The most e-commerce intensive product category is the music and videos category. Books and
magazines were the second most dependent on online retail platforms. Music and videos therefore
appear to have almost saturated their e-commerce potential.
,It was shown that countries that saw larger increases in the number of warehouse club/supercenter
stores saw larger declines in their number of department stores.
The patterns in the retail sector involving e-commerce and warehouse club/supercenter stores have
been accompanied by a number of systematic changes in retail market structure. These include
increases in the average scale of retail operations, increasing concentration within the industry, a
reduction in business dynamism, and a modest shift in retail activity toward more populated areas.
One potential factor that could be pushing toward greater scale in the retail sector is the increasing
importance of network economies among chain stores.
One potential explanation for the reduction in the number and size of young retail firms is that activity
in the sector has shifted away from small companies. The slowdown in dynamism is happening
economy-wide, which indicates that additional factors might be at play within retail.
The evolution of retail (video)
- 7000 before Christ: the agora was created, which is a city for the trade of commodities
- 7th century: the Lydians invented retail shops
- 110: Trajan market -> often, the start of retail is equated with this
- 17th century: an explosion of shops due to the rise in buying with credit
- 18th century: rise of the middle class (bourgeoisie)
- 1786: the first arcade was created -> becoming a permanent location of concentrated shops
-> precedent of a mall
- 1824: introduction of fixed prices. Before this, there would be negotiations on the price, which
is time-consuming and inefficient
- 1852: the first department store was opened in Paris, called Au Bon Marché
- 1922: the first unified shopping mall in Kansas City
- 1930: the department stores branched out to suburbs -> rise of mobilization. Also, the first
supermarket was opened
- 1951-1953: the Lijnbaan was created -> first car-free retail area in Europe
- 1962: the first Wal-Mart was opened
Grocery retail evolution:
- 1800s: people bought goods in a general store, which had dry goods alongside clothing and
hardware
1. Lots in bulk
2. Everything on sale, but untouchable
3. Unmarked prices, lots of price haggling
4. Mostly buying on credit
- 1850s: invention of corrugated cardboard, which can be used to transport smaller portions
(not bulk) of goods and later also became useful for card stock (cereal boxes) -> the portions
could be directly sold to the store, which gave rise to brands
- 1900s: packaged food was responsible for one-fifth of all manufacturing in the US
- 1916: the first completely self-service grocery store comes to light, called Piggly Wiggly
- 1930: King Kullen becomes the first supermarket
- 1936: the shopping cart was invented
, - 1965: all grocery stores are supermarkets
- 1950: Walton opened a predecessor to Walmart (five and dime)
As for e-commerce, in 1994, Amazon was created and in 1998 Google. In 2014, the Alibaba group
started.
Types of retailers (video)
Retailers come in a lot of different types and sizes:
1. Big-box store: a large store/retailer, but they provide limited-service. Examples are Walmart
and Target
2. Category killer: a retailer that offers a narrow but deep assortment of merchandise in a
category and thus dominates the category from the customer’s perspective. This is also called
a category specialist -> Bed Bath & Beyond, Best Buy and Dick’s Sporting Goods
3. Convenience store: a store that provides a limited variety and assortment of merchandise at a
convenient location in a 150 to 300 m^2 store with speedy checkout, such as the 7 Eleven
and Spar
4. (Conventional) supermarket: larger than a convenience store and is a self-service food store
that offers groceries, meat, and produce with limited sales of nonfood items, such as health
and beauty aids and general merchandise -> Albert Heijn and Jumbo
5. Department store: a retailer that carries a wide variety and deep assortment, offers
considerable customer services, and is organized into separate departments for displaying
merchandise
6. Dollar store: a small, full-line discount store that offers a limited merchandise assortment at
very low prices. They are also called extreme-value retailers. An example is the Dollar Tree
7. Drugstore: a specialty retail store that concentrates on pharmaceuticals and health and
personal grooming merchandise -> Kruidvat and CVS
8. Outlet store: an off-price retailer owned by a manufacturer or department or specialty store
chain -> Batavia stad
9. Full-line discount store: retailers that offer a broad variety of merchandise, limited service, and
low prices. This is kind of the retailer version of an outlet store
10. Hypermarket: a large (9000-30,000 m^2) combination food (60-70%) and general
merchandise (30-40%) retailer -> Carrefour market
11. Nanostore: a small mom-and-pop store in an emerging economy, which is owned by a single
person or a family
12. Specialty store: a type of store concentrating on a limited number of complementary
merchandise categories and providing a high level of service
Lecture 1
Retail operations has multiple definitions:
- “The sale of small quantities of items to end consumers, as opposed to wholesale, which
involves selling to business or institutional consumers”
- “Activities involved in the selling of physical goods or services to ultimate customers for
personal or household consumption”
, Functions of retail: convenience, due to proximity, multiple products together, offering more selling
points, accessibility and satisfying needs.
The word “retail” is derived from the Old French verb tailler, which means something like “to cut off,
clip, pare, divide in terms of tailoring” -> break bulk down into smaller pieces. It was first recorded as
a noun in 1433 with the meaning “a sale in small quantities”. The verb retailer in Middle French
means “a piece cut off, shred, crap, paring”.
The purpose of retail is:
1. Break up bulk
2. Holding inventory
3. Offer an assortment (provide variety)
4. Lower consumer search costs (one stop shopping)
5. Offer services (e.g., curation, expertise, returns handling) -> add value
The costs of the channel activities (the cost of retail) increases the costs of products and services. The
costs in the supply chain can be almost as much as the cost to make the product. If you take the cost
of selling goods as a fraction of GDP, then you get a proxy of how important retail is. This is 20%.
The US has more chain-stores while China has more mom-and-pop stores. That is why the US has a
lot more selling space for retail outlets, while China has a lot more retail outlets per inhabitant.
Europe is in the middle.
Retail is always growing and people thus spend
more money. The retail sector experienced
negative turnover in times of the hard
lockdowns. After these periods, individuals’
spending behavior shifted and the turnover saw
large increases as restaurants and other facilities
closed. The CBS reports for November 2022
that the Dutch retail sector recorded a 5.5%
year-on-year turnover growth. The volume of
sales, however, went down by 4%, which is the
turnover adjusted for price changes.
The ongoing evolution of US retail
There are two explanations for what is happening in the retail sector: a prediction that retail sales will
migrate online and physical retail will be virtually extinguished, and a prediction that future shoppers
will be heading to giant physical stores.
The many definitions of ‘retail’ have important commonalities. First, retail sells merchandise or goods:
physical objects and digital items. Second, it sells them without transformation.
Retail sells goods as opposed to services. Goods consumption as a share of the economy has seen a
long-run decline. But relative to total goods consumption, retail has not been shrinking over the long
run.
The fact that the retail sector’s value-added share has been consistently smaller than its employment
share indicates that value added per employee (measure of labor productivity) is lower in retail than
in the economy overall. This difference in labor productivity is reflected in part in an average earnings
gap between retail and the overall economy.
Within-store productivity growth accounts for a relatively minor portion of sector wide productivity
growth in US retail. Instead, the reallocation of activity across stores drives most of the gains in
overall retail productivity, which in turn occurs both through the entry of new, more efficient firms
replacing a set of less-efficient existing ones, as well as through successful firms adding new stores.
The productivity levels and growth rates of retail establishments are correlated with their rates of
investment in information technologies.
While it is unclear whether these relationships between technology, management, variety and
productivity are causal, the patterns do suggest possible channels through which productivity shapes
the success and survival of retailers. While many of these productivity drivers involve digital and
other information technologies, they are as likely to operate on the back-end of retail as on the
customer-facing front-end.
The combination of productivity gains and drops in labor compensation has reduced the sector’s unit
costs. These cost drops have been captured by two parties: consumers pay a lower retail margin on
goods they buy, and payments to the sector’s capital holders have risen.
The vast majority of retail e-commerce sales occur in the Electronic Shopping and Mail-Order Houses
industry (ESMOH). The three product categories that account for the most online retail sales by
ESMOH are clothing, accessories and footwear. The remaining 15% of online retail sales are made by
establishments whose primary activities are physical in nature.
The most e-commerce intensive product category is the music and videos category. Books and
magazines were the second most dependent on online retail platforms. Music and videos therefore
appear to have almost saturated their e-commerce potential.
,It was shown that countries that saw larger increases in the number of warehouse club/supercenter
stores saw larger declines in their number of department stores.
The patterns in the retail sector involving e-commerce and warehouse club/supercenter stores have
been accompanied by a number of systematic changes in retail market structure. These include
increases in the average scale of retail operations, increasing concentration within the industry, a
reduction in business dynamism, and a modest shift in retail activity toward more populated areas.
One potential factor that could be pushing toward greater scale in the retail sector is the increasing
importance of network economies among chain stores.
One potential explanation for the reduction in the number and size of young retail firms is that activity
in the sector has shifted away from small companies. The slowdown in dynamism is happening
economy-wide, which indicates that additional factors might be at play within retail.
The evolution of retail (video)
- 7000 before Christ: the agora was created, which is a city for the trade of commodities
- 7th century: the Lydians invented retail shops
- 110: Trajan market -> often, the start of retail is equated with this
- 17th century: an explosion of shops due to the rise in buying with credit
- 18th century: rise of the middle class (bourgeoisie)
- 1786: the first arcade was created -> becoming a permanent location of concentrated shops
-> precedent of a mall
- 1824: introduction of fixed prices. Before this, there would be negotiations on the price, which
is time-consuming and inefficient
- 1852: the first department store was opened in Paris, called Au Bon Marché
- 1922: the first unified shopping mall in Kansas City
- 1930: the department stores branched out to suburbs -> rise of mobilization. Also, the first
supermarket was opened
- 1951-1953: the Lijnbaan was created -> first car-free retail area in Europe
- 1962: the first Wal-Mart was opened
Grocery retail evolution:
- 1800s: people bought goods in a general store, which had dry goods alongside clothing and
hardware
1. Lots in bulk
2. Everything on sale, but untouchable
3. Unmarked prices, lots of price haggling
4. Mostly buying on credit
- 1850s: invention of corrugated cardboard, which can be used to transport smaller portions
(not bulk) of goods and later also became useful for card stock (cereal boxes) -> the portions
could be directly sold to the store, which gave rise to brands
- 1900s: packaged food was responsible for one-fifth of all manufacturing in the US
- 1916: the first completely self-service grocery store comes to light, called Piggly Wiggly
- 1930: King Kullen becomes the first supermarket
- 1936: the shopping cart was invented
, - 1965: all grocery stores are supermarkets
- 1950: Walton opened a predecessor to Walmart (five and dime)
As for e-commerce, in 1994, Amazon was created and in 1998 Google. In 2014, the Alibaba group
started.
Types of retailers (video)
Retailers come in a lot of different types and sizes:
1. Big-box store: a large store/retailer, but they provide limited-service. Examples are Walmart
and Target
2. Category killer: a retailer that offers a narrow but deep assortment of merchandise in a
category and thus dominates the category from the customer’s perspective. This is also called
a category specialist -> Bed Bath & Beyond, Best Buy and Dick’s Sporting Goods
3. Convenience store: a store that provides a limited variety and assortment of merchandise at a
convenient location in a 150 to 300 m^2 store with speedy checkout, such as the 7 Eleven
and Spar
4. (Conventional) supermarket: larger than a convenience store and is a self-service food store
that offers groceries, meat, and produce with limited sales of nonfood items, such as health
and beauty aids and general merchandise -> Albert Heijn and Jumbo
5. Department store: a retailer that carries a wide variety and deep assortment, offers
considerable customer services, and is organized into separate departments for displaying
merchandise
6. Dollar store: a small, full-line discount store that offers a limited merchandise assortment at
very low prices. They are also called extreme-value retailers. An example is the Dollar Tree
7. Drugstore: a specialty retail store that concentrates on pharmaceuticals and health and
personal grooming merchandise -> Kruidvat and CVS
8. Outlet store: an off-price retailer owned by a manufacturer or department or specialty store
chain -> Batavia stad
9. Full-line discount store: retailers that offer a broad variety of merchandise, limited service, and
low prices. This is kind of the retailer version of an outlet store
10. Hypermarket: a large (9000-30,000 m^2) combination food (60-70%) and general
merchandise (30-40%) retailer -> Carrefour market
11. Nanostore: a small mom-and-pop store in an emerging economy, which is owned by a single
person or a family
12. Specialty store: a type of store concentrating on a limited number of complementary
merchandise categories and providing a high level of service
Lecture 1
Retail operations has multiple definitions:
- “The sale of small quantities of items to end consumers, as opposed to wholesale, which
involves selling to business or institutional consumers”
- “Activities involved in the selling of physical goods or services to ultimate customers for
personal or household consumption”
, Functions of retail: convenience, due to proximity, multiple products together, offering more selling
points, accessibility and satisfying needs.
The word “retail” is derived from the Old French verb tailler, which means something like “to cut off,
clip, pare, divide in terms of tailoring” -> break bulk down into smaller pieces. It was first recorded as
a noun in 1433 with the meaning “a sale in small quantities”. The verb retailer in Middle French
means “a piece cut off, shred, crap, paring”.
The purpose of retail is:
1. Break up bulk
2. Holding inventory
3. Offer an assortment (provide variety)
4. Lower consumer search costs (one stop shopping)
5. Offer services (e.g., curation, expertise, returns handling) -> add value
The costs of the channel activities (the cost of retail) increases the costs of products and services. The
costs in the supply chain can be almost as much as the cost to make the product. If you take the cost
of selling goods as a fraction of GDP, then you get a proxy of how important retail is. This is 20%.
The US has more chain-stores while China has more mom-and-pop stores. That is why the US has a
lot more selling space for retail outlets, while China has a lot more retail outlets per inhabitant.
Europe is in the middle.
Retail is always growing and people thus spend
more money. The retail sector experienced
negative turnover in times of the hard
lockdowns. After these periods, individuals’
spending behavior shifted and the turnover saw
large increases as restaurants and other facilities
closed. The CBS reports for November 2022
that the Dutch retail sector recorded a 5.5%
year-on-year turnover growth. The volume of
sales, however, went down by 4%, which is the
turnover adjusted for price changes.
