U.S. efficiency in retail trade gives it only a slim lead over France, though the lead over Germany is larger (Exhibit 7). To catch up or overtake the U.S., retailers in France and Germany need to increase their deployment of lean management processes through better use of information technology and greater integration with suppliers.
Zoning Laws Favor French
Retail trade is one of France's strengths. The food distribution subsector in particular drives French retail efficiency (Exhibit 8). This segment is 19 percent more efficient than its U.S. counterpart and 34 percentage points more so than in Germany.
France's big productivity advantage in this segment is due to a favorable regulatory environment. Strict zoning rules in France have effectively limited the opening of new, large outlets and the expansion of existing stores. As a result, French food stores handle approximately double the output of similar-sized stores in the other two countries. At the same time, however, this regulation slowed down the modernization of store formats. Consequently, retailing started to lose ground in terms of labor productivity in the 1990s.
U.S. Pushes Ahead
However, if all the effects of external factors, such as regulation, are removed from the equation, the U.S. reasserts its labor productivity advantage in food retailing - 5 percent over France and 15 percent over Germany. U.S. retailers push productivity through innovation - frequently using IT - in merchandise management, supply chain management, and store operations.
To find these efficiencies, U.S. retailers aren't afraid to invest. In 1999, U.S. retailers spent 8 percent of their gross margin on IT improvements. France and Germany were well behind at just 6.3 and 6 percent investment levels respectively.
Collaborating to Get Ahead
To exploit the productivity potential of IT, French and German retailers need to work on their collaboration approach with suppliers. Better IT integration requires a certain level of cooperation, for example, sharing demand forecasts with suppliers. This allows suppliers to optimize their production schedule.
These integration benefits can only be reaped, however, if the right IT applications are in place, such as point-of-sale data collection on individual products, data warehouses, forecasting tools, and a common platform for sharing information. Launch this chapter (PDF - 181 KB)
