Big box stores like Costco essential if we’re to close retail productivity gap with US

I was pleased to see the Deputy Premier used his special powers to approve the big box Costco store at North Lakes in Brisbane, avoiding a potential legal dispute that could delay the development (see the AAP report Costco is coming to Queensland). Big box stores like Costco are highly efficient and we need more of them if we are to close the large gap in retail sector productivity we have with the US, as observed by my former Treasury colleague Jyoti Rahman in a thought-provoking Economic Roundup paper in 2005:

Comparing Australian and United States productivity

Jyoti observed:

The US retail trade sector has experienced rapid productivity improvement since the mid-1990s. This productivity surge can be attributed almost entirely to the entry of more productive firms that displaced much less productive existing retailers…The entering firms were usually large discount operations — the ‘big-boxes’ like Wal-Mart. These stores are more productive because of their size, which allows them to exploit economies of scale, efficiently use warehousing, better manage inventories and implement other innovative operation practices…

Jyoti wondered whether our low population density might limit the proliferation of big box stores in Australia, but thankfully recent developments suggest it might not, which is very good news for Australian consumers.

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