The Death of Retail: The Economics of the (Doomed) Office Depot/OfficeMax Merger

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It's the end of office-supply shopping as we know it. And you should feel fine.

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Office Depot has reportedly agreed to buy OfficeMax to form a super-office-retailing juggernaut that ... well, is still 25 percent smaller than Staples and is probably doomed, anyway.

For those of us on the end of retail beat, like Matt Yglesias and myself, the news might be a surprise but the story's shape is familiar. For the last two decades, Walmart and e-commerce, led by Amazon, have eaten retail with a blend of supply-chain mastery, digital savvy, and ginormous scale.

Long story short: For most of the 20th century, retail work grew in line with the population. Below is a look at retail employment as a share of the labor force since 1950. What you're looking at is the perfect "cyclical" industry. When the economy shrank (gray bars), retail pulled back. When the economy grew (white columns), retail charged ahead. Then something happened in the 1990s ... retail seemed to get a case of the productivity bug. It's not like Americans suddenly decided to stop buying computers and clothes and toilet paper in 2000. We just bought more of those things at labor-saving supercenters like Walmart -- or super-labor-super-savings-supercenters like Amazon.com. Retail became more productive, which means they could sell more with less costs -- those costs being people and stores.

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Cool news for consumers. Bad news for an industry that employs one out of ten American workers.

Still, retail is too big and varied to die in unison. Our "end of retail" story won't sell as well at clothing accessory stores, where employment is up more than 50 percent since 2001. People still like touching the clothes they wear (even if young shoppers are more comfortable than their parents ordering shirts in boxes for home delivery). 

But office and supply stores aren't so lucky. Not only are their shelves being replaced by digital shelves, but also their products -- paper and office supplies -- are being replaced by digital products. A real double-whammy. The few retail categories more doomed than office stores are music stores, camera stores, computer stores, book stores ... essentially, the guys who are really and truly hosed. [This data shared exclusively with The Atlantic by our friends from EMSI]

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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