After a busy couple weeks leading up to the Federal Reserve’s latest interest rate increase, this week markets should take a bit of a breather.
And Monday was, to say the least, calm.
None of the major equity indexes moved more than 0.2% on Monday, with the Dow and Nasdaq each moving less than 0.1% amid a lack of corporate and economic data.
On Tuesday, markets will face a similar dearth of news to key off, with the highlight coming from quarterly earnings out of homebuilder Lennar (LEN).
It has now taken as an article of faith that brick-and-mortar retail is dying in America.
This is both true and not.
The mall as a destination for shoppers and a place for retailers to plant their flag is certainly dying. As Credit Suisse wrote in a note earlier this year, “we are at (or even past) a tipping point for the traditional full-price mall environment, particularly in tier-two and tier-three locations.” Which means if you don’t have a store in a wealthy city or neighborhood, your retail industry is dying.
And so while consumer preferences and trends are seen as the ultimate arbiter of Amazon’s (AMZN) seemingly inevitable triumph over brick-and-mortar retailers, there is also a simple and obvious business model issue that brick-and-mortar retailers will never overcome: productivity.
“Nonstore retailer productivity is 5.6x higher than at the start of 1992, versus 2.0x higher for Building Materials, 2.1x for Clothing/Accessories, and 2.1x higher for General Merchandise,” Bespoke wrote in a note to clients on Monday.
“For Department store sales, it’s a grim chart: revenue per employee has dropped 1.5% over the last 25 years!”
Bespoke does not that it is leaving out hours worked, employee wages, and that companies like Amazon will have employees in other categories (and thus not contributing to retail revenue per employee). Even still, the difference between online retailers and the rest of the industry is huge.
Now, it isn’t all bad news for retailers, however, as Bespoke notes that department stores are the real laggard here while a number of other segments — including building materials (think Home Depot (HD) and Lowe’s (LOW)) — have seen productivity gains.
“In other words, it’s a mistake to declare all retail dead,” Bespoke writes.
And with companies like Amazon moving into brick-and-mortar retailing, it’s clear that there remains value in having a physical location for customers to be visit. It just better be good, or at least, better than staying home and ordering basically anything you could ever need.
Which, in Bespoke’s view, sort of sums of much of the seeming paradox of our current economic age.
“In pursuit of profits, the new model of online commerce is winning because it’s flat-out more efficient,” Bespoke writes.
“As it succeeds, the older, less efficient ways of selling goods to consumers are losing market share and crumbling. Over time, it’s this iterative process across industries that drives productivity, the ultimate source of higher standards of living. In a period when aggregate output per worker hour (labor productivity) has been cratering, we think the retail industry is a great example that there’s more going on beneath the surface than the headline labor productivity stats alone.”
Or as the comedian Louis C.K. once said, “Everything is amazing and nobody is happy.”
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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