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Columnist Robert J. Samuelson has an interesting piece in the Washington Post this morning about the "creative destruction" affecting the retailing business, as chains big and small, from Sears and Kmart to The Limited, shut down stores and sell or close down businesses, all part of a broad consolidation movement that is likely to continue through 2017.

The column notes that most of the time, this would be a painful but positive process - the weak get washed away, the strong get stronger and more stable, and productivity continues to grow. It is tough for workers, managers and stockholders, but it is the circle of life.

But, Samuelson writes, there is a problem - which is that productivity growth has "slowed dramatically." And, he adds, "We’ve gotten much pain but are still waiting for the gain."

While the column suggests that there could be a variety of reasons for the productivity slowdown, Samuelson makes a broader argument, talking about what he calls “parallel technologies":

"We have two systems to do one job. Companies have to support the old as well as the new technology. People no longer buy everything in stores, but stores are still necessary. (In 2016, e-commerce totaled about 8 percent of retail sales.) Still, the loss of sales makes brick-and-mortar stores less productive, and their loss of productivity offsets some or all of the gains from digital technologies.

"This is, I think, the basic explanation of what’s happening at Macy’s and Sears. They have to invest in the new technology, even as the value of the old technology erodes. The effect is compounded because they’ve been slow to shut marginal stores. There’s always the hope that these stores will bounce back and avoid large losses.

"If these 'parallel technologies' applied only to e-commerce and stores, it would be interesting but not decisive. But it applies to many industries and products, which magnifies its economic significance. You can think of many cases: smartphones and traditional landlines; paper and digital newspapers; cable TV and streaming Internet video; standard taxis and Uber."

The questions, he suggests, are whether there is a silver lining to the "parallel technologies" cloud ... and how long it will take to find it.
KC's View:
I just thought this was a fascinating piece, and it puts a finger on at least one of the reasons traditional, legacy-based companies have such a problem competing with disruptive upstarts such as Amazon. And I have to think that one of the goals of digital companies like Amazon has to to be making sure that, even as they flirt with and test physical stores, they avoid creating parallel technology tracks that will serve as a hindrance to competitiveness and growth.

The only silver lining I can see to this situation is the recognition that it exists. Beyond that, I think it is enormously difficult for traditional companies to find ways around this problem.