One of the lingering economic debates concerns productivity growth.

Despite reports we see nearly every day that robots are taking jobs (a fact that  should make productivity rise) something has gone amiss.

Productivity is measured as the output of goods and services per hour worked.

Productivity growth slowed dramatically since 2011.

US Nonfarm Productivity

Productivity 2016-04-24

Why the huge slope change if robots are taking jobs away from people?

Too Many Stores and Too Much Mall Space?

The Wall Street Journal reports Department Stores Need to Cull Hundreds of Sites, Study Says.

Department stores need to close hundreds of locations if they want to regain the productivity they had a decade ago, according to new research from Green Street Advisors.

The real-estate research firm estimates that the closures could include roughly 800 department stores, or about a fifth of all anchor space in U.S. malls.

Sears Holdings Corp. alone would need to close 300, or 43%, of its Sears stores to regain the sales per square foot it had in 2006, adjusted for inflation, according to Green Street.

productivity WSJ

Sales at the nation’s department stores averaged $165 a square foot last year, a 24% drop since 2006, according to company disclosures and Green Street estimates. Over the same period, the stores reduced their physical footprint by 7% in aggregate.

Some chains have moved faster to cull their fleets than others. On Thursday, Sears said it would close 78 stores, including 68 Kmarts, this summer, part of a plan announced in February to “accelerate the closing of unprofitable stores.” But Penney has only closed seven stores this year out of a base of more than 1,000.

Green Street estimates that Penney would need to close a total of 320 locations, or 31% of its stores to return to its 2006 productivity levels, while Nordstrom Inc. would need to shutter 30 stores, or a quarter of its footprint. By comparison, Macy’s, which closed 40 stores last year, would only need to eliminate a further 70 locations, or 9% of its base, Green Street estimates.

A spokesman for Nordstrom said that all of its stores are profitable, and closing stores “is not our normal practice.”

It may be unrealistic to expect that department stores could ever return to historical levels of sales or profits given the changing dynamics of retailing. Many retailers say they make less money selling goods online than they do in their physical stores. And with the Internet making it easier for consumers to comparison shop, discounts have become the norm.

Question of Robots

Robots are certainly taking manufacturing jobs away, but despite the talk, robots have made few inroads in big box retailers, grocery stores, etc. Self-service checkout has eliminated some jobs, but cheap money has made it too easy for companies to expand stores everywhere.

Add in deflationary pressures from China, a slowing global economy, and an increasing trend towards online shopping and you have your answer.

Productivity Pick-Up Coming

Productivity will pick up dramatically in the early to mid 2020s. At that time, millions of long haul trucking jobs will vanish as will millions of manned taxi and bus driving jobs.

Factor in minimum wage hikes that will slow the growth of retail and fast food establishments and productivity will once again escalate up.

All the economists now worrying that productivity is too low will soon be complaining it’s too high.

Mike “Mish” Shedlock