Discount Retail Profitability: A Harbinger For E-Commerce?

Abstract

Expansion of electronic commerce has the potential to increase retail productivity.However, these gains may not translate into enhanced retailer profitability.This study examines profitability of the discount retail industry from 1981-1998,a period during which the industry realized significant productivity gains.Although productivity measures like inventory turnover and sales per employeeincreased during this period, industry profitability did not increase. Instead,consumers benefited from the increased efficiency through paying lower markups.The experience of the discount retail industry may indicate that retailersface a product price treadmill: gains in efficiency result in lower prices ratherthan higher profits. The projected efficiencies of the Internet and the expansionof electronic commerce may portend lower retail profitability but greater savingsfor consumers.