Low productivity, high impact: The case for retail
It might be tempting to overlook retail when sizing up a city or region’s economy. But while retail may be small and low-productivity, it plays a critically important role in making local economies attractive, vibrant and resilient.
Despite its outsized cultural importance, retail accounts for only a small share of economic value. For example, in the City of Melbourne, retail contributes just 1.7 per cent of gross value added and employs 3.4 per cent of workers. This picture holds outside the inner city too: in Liverpool (Sydney’s western suburbs), retail makes up 5.1 per cent of value add and 8.4 per cent of employment; even in Queensland’s Cassowary Coast region, retail represents 4.6 per cent of value add and 7.5 per cent of jobs (economy.id). Those figures underscore that, measured purely by output and headcount, retail plays a modest role in our broader economic story.
Strand Arcade, Sydney
The productivity story reinforces the case for caution. Across Australia, average value added per retail job stands at just $75,527 - barely half the national average of $148,386 per worker. As a result, when a city or region tilts too heavily towards retail growth it can drag down overall productivity and, by extension, average living standards. From a narrow economic-efficiency standpoint, prioritising retail might even appear counterproductive.
Yet, from a place-making perspective, retail is indispensable. Active, well-curated high streets and neighbourhood centres create the street life that knowledge workers and creative professionals crave. The buzz of cafés, boutiques and local services gives a place its distinctive character, signalling that it is alive to opportunity and open for business. Research consistently shows that talented professionals consider quality of life - walkability, public space, interesting local businesses - when choosing where to live and work. Without retail, a city risks feeling sterile and transactional, rather than warm and welcoming.
Retail isn’t just about resident wellbeing; it’s also a cornerstone of the visitor economy. In Victoria, “CBD shopping” and Queen Victoria Market rank as the No. 1 and No. 2 visitor destinations respectively - outranking even the Great Ocean Road and the Twelve Apostles - demonstrating how retail anchors tourism and hospitality across the state (Melbourne Economy Snapshot, March 2025). By drawing in visitors, retail injects additional spending that benefits local cafés, galleries, transport services and accommodation providers, amplifying its impact well beyond shopfronts.
There is also a powerful symbiosis at play. Higher-value sectors - technology, professional services, finance - inject the economy with higher wages and disposable income. A thriving knowledge sector thus provides the consumer base that keeps local shops, restaurants and markets humming. In turn, a vibrant retail environment enhances the appeal of office districts and innovation precincts by offering amenities that employees value outside working hours. In other words, retail may be low in direct productivity, but it amplifies the productivity of neighbouring businesses by making a city or town a more attractive place to be.
The challenge for economic development professionals is not to champion retail as an end in itself, but to integrate it intelligently into a balanced local-economy strategy. That means focusing on the quality of retail offerings - supporting independent retailers, encouraging mixed-use zoning, investing in public spaces and connectivity - rather than simply chasing square-metre targets. It means recognising that not all retail growth is created equal. A quirky bookstore or a late-night food market may contribute more to placemaking, visitor appeal and talent attraction than yet another generic shopping centre.
Out-of-town ‘big box’ developments may boost sales volumes, but they do so at the expense of walkable streets, local character and the spill-over benefits for cafés, galleries and knowledge-based firms. By pulling foot traffic away from high-streets and precincts, they weaken the urban pulse that attracts talent and tourists alike.
Healthy local economies need retail. Its direct contribution to output and productivity may be modest, but its indirect effects on talent, creativity, placemaking and tourism are profound. By embracing retail as a strategic partner to higher-value sectors - rather than viewing it as a drag on prosperity - city and regional leaders can build environments that support both economic efficiency and the social vibrancy that makes places worth living in and visiting. The most successful local economies are more than the sum of their sectors; they are ecosystems in which low-productivity retail and high-productivity knowledge industries thrive together.