Already a Bloomberg.com user?
Sign in with the same account.
In the 1990s, manufacturers adopted a lot of new technologies and more efficient processes that boosted their productivity. But it wasn't simply a matter of retooling existing factories. In fact, economic studies have shown that a big chunk of productivity gains came from shutting old-fashioned plants and building new ones with the latest technology from the ground up.
It turns out that what worked for manufacturers worked even better for retailers. In the second half of the 1990s, retail productivity skyrocketed (chart). Almost 100% of that growth came from closing old stores and opening more efficient ones with the latest equipment at the checkout counter and in the storeroom. That's according to a study by economists John Haltiwanger at the University of Maryland, Lucia Foster at the U.S. Census Bureau, and C.J. Krizan from the Bank of Spain in Madrid.
In part, what happened was that low-productivity retailers simply went out of business. By using data from the Census of Retail Trade for 1987, 1992, and 1997, the authors were able to track the output per worker of individual stores during this period. They found that 70% of the least efficient stores in 1987 had closed their doors 10 years later.
In some categories of retailing, it appears that small mom-and-pop retailers were replaced by more efficient chains. In the category of general merchandise stores, which includes both small retailers and large warehouse-style stores such as Sam's Clubs (WMT
), new stores showed 1.4 times the average productivity growth of the category as a whole. That means existing stores actually dragged down efficiency during the decade.
In the cases of department stores such as Macy's (FD
) or Sears (S
) and catalog retailers such as L.L. Bean, existing operations did manage to achieve some productivity gains during the 1990s. That's because department stores and catalogers faced huge competitive pressure to reinvent themselves because rivals such as Wal-Mart Stores Inc. were gobbling up their market share, says Haltiwanger. But even among these retailers, around 60% of their total productivity increase came from new stores.
One implication is that retailers are often better off building from scratch than trying to renovate or upgrade existing stores. That may help explain why retailers keep putting up new stores even in the face of intense competition. In July, 2002, individual investors withdrew $52.4 billion from stock funds, the second-biggest cash-out as a percentage of assets, and the largest ever in sheer dollar volume. Many market watchers have interpreted this flight as evidence that individual investors have given up on the market and the economy, suggesting that things will only get worse.
But if history is any judge, the recent retreat of individual investors may be the signal that things are just about to turn around, says Tobias M. Levkovich, chief strategist for Salomon Smith Barney. He looked at the biggest mutual-fund cash-outs over the past 30 years, as measured by the percentage of assets redeemed by investors. What he found was big redemption sprees were generally followed by rising markets (table).
For example, the largest mutual-fund share sell-off by percentage of assets occurred in October, 1987. A year later, the value of the Standard & Poor's 500-stock index had gone up almost 11% (chart). Those who put money into the broader market in August or November of 1988, record dates for mutual-fund outflows, would have enjoyed gains of 34.4% and 26.4% over the next year, respectively. "Retail investors are often out of sync with market trends, because they tend to invest reactively, acting on emotion," observes Levkovich. As a result, they have made their biggest mutual-fund sell-offs just when the stock market is about to turn.
Investors do no better at calling the peak of the market, says Levkovich. New investments in stock mutual-fund shares in February and March of 2000--just before the market peak of March 10--were five times the monthly average of the in-flows for the previous two years. Moreover, the inflows continued even as the market began to slide.
Of course, there's no guarantee that investors will be wrong this time. But their shift out of stocks probably means a market bottom, says Levkovich. Economists have long debated what bolsters people's sense of well-being. Some say that people worry only about their own welfare when it comes to issues such as health and employment. Others argue that a happy society makes for a happy individual: People will be more satisfied if their fellow countrymen are healthy and employed as well. It turns out that both are true, according to a study by John F. Helliwell, economist at the University of British Columbia.
Using international data gathered at various points between 1980 and 1997, the author finds that measures of national well-being appear to be just as important as measures of personal well-being in creating a sense of individual happiness. For example, a person's happiness is affected not just by his or her own income but by the overall level of gross domestic product per capita in the broader economy.
But Helliwell also observes that above a certain level, both personal and national income start having less impact on reported measures of well-being. That explains why it is possible for countries with different income levels to report similar levels of happiness.