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Dallas Is Capitalizing on Digital Retail

The city's reputation for shopping is legendary. Its growing prominence in e-commerce could surpass it.
Karla Bernal

With apologies to the Dallas Cowboys, the most popular pastime in this part of the world just might be shopping. The Dallas-Fort Worth area leads the nation in shopping centers per capita and ranks among the nation’s Top 5 with about 460,000 retail workers.

Perhaps it started with charismatic merchant Stanley Marcus, maybe it owes to something else, but, this former trading post on the Trinity River has inexplicably grown into one of America’s shopping superstars.

We all know, of course, that the internet set off a slow-moving earthquake under the traditional retail sector. The rapid rise of e-commerce in the past decade or so means more of our shopping is being done from home—or, data tell us, from work. It’s quicker, often cheaper, with wider selection and no traffic or parking hassles.

As consumers in DFW and the rest of the country shift more of their buying on-line, we wondered whether an unlikely brick-and-mortar superstar can transition to an e-commerce superstar.

Let’s start by taking stock of the region’s e-commerce industry. Among the 20 largest U.S. metropolitan areas, DFW ranked fifth, with 10,056 companies operating in the e-commerce space in 2016, according to data from the U.S. Census Bureau. These companies employed 384,000 workers, fourth in the nation. Payrolls at DFW e-commerce firms exceeded $20.4 billion, seventh among MSAs. The North Texas region’s e-commerce sector is the largest in Texas.

Unlike physical stores, which sell mostly to local customers and out-of-town visitors, the e-commerce market potentially extends to buyers just about anywhere in the world. Yet the industry’s distribution, based on the 2016 data, more or less tracks MSA size. The New York, Los Angeles, and Chicago areas are at the top of the e-commerce pecking order in terms of companies, employees and payrolls. To date, DFW’s e-commerce metrics seem in line with what the nation’s fourth-largest MSA might be expected to achieve.

Retailing’s New Reality

Recent bankruptcies at Sears, Toys R Us, RadioShack, Brookstone, Mattress Firm, and dozens of others prompted visions of a looming retail apocalypse. The hand-wringing may be overblown, but it points to the challenge that brick-and-mortar retailers face in the e-commerce age. fuels e-commerce growth as a voracious disrupter of the retailing status quo. Unwilling to cede the lucrative e-commerce market without a fight, traditional brands like Wal-Mart are moving aggressively into online sales. No matter how it all shakes out, e-commerce will continue to rapidly expand in the decades to come. All MSAs will be angling to cash in on retailing’s new reality. 

The old real estate maxim applies to brick-and-mortar retailing—location, location, location. E-commerce operates by its own rules. It will grow free of geographic restraint. Firms can set up operations almost anywhere that offers high-speed Internet connectivity, cheap and reliable electricity, an educated workforce, and transportation links.

All the big MSAs fill the bill. But what about labor costs? Running an e-commerce business involves hiring workers for a range of jobs—for example, information technology, customer relations, and billing order fulfillment. Do the data reveal whether some MSAs will have a comparative advantage?

Pay and Living Standards

Looking at the largest MSAs, the average annual salary at firms running e-commerce businesses ranges from $92,316 in the Silicon Valley hub of San Jose to $49,759 in the Miami area (see chart). Dallas-Fort Worth ranks toward the bottom at $53,192—just above the Miami area and about $500 behind the Los Angeles area.

Low salaries suggest that e-commerce companies would find Dallas a fertile place to do business. For example, moving operations from San Jose to DFW would save $39,124 per employee. A San Jose e-commerce firm averages about 35 employees—so the bottom-line gain would be almost $1.4 million a year.

Now this is where this mental exercise gets really interesting: Workers who move from high-paying San Jose to lower-paying DFW should be happy too, assuming they can adjust to the higher summer temperatures. In Silicon Valley, workers face much higher taxes, more expensive housing and other high living costs. Adjusting for the way those burdens erode paychecks, the typical San Jose e-commerce worker can only afford to consume what $33,336 would buy in the DFW area. In real terms, the e-commerce worker comes out $9,350 better off in DFW.

Adding the company and worker gains gives DFW an annual $48,474 per employee e-commerce advantage over the San Jose area. Similar calculations for the other MSAs reveal DFW holds big per employee edges over all these urban areas—$36,673 for San Francisco, $34,494 for New York, $23,024 for Boston, $21,798 for Washington, D.C.

A lower average e-commerce salary holds the total benefits of moving from Miami to $2,903 per employee. Atlanta’s relatively low cost of living keeps it within $4,501 of DFW. Although it’s equal to DFW in low taxes and living costs, Houston’s high e-commerce salaries leave the gap with DFW at $4,882.

Any number of idiosyncratic factors determine where firms decide to do business, but an often significant cost advantage should boost DFW’s e-commerce prospects.

The Dallas area is going to get e-commerce disruption, like it or not, but the region seems well positioned to seize e-commerce’s opportunities. Many of the advantages that have made North Texas a magnet for business will be important for developing e-commerce, and the Census Bureau data yields another potential plus for the region. In terms of profits and living standards, DFW could be the best big MSA for e-commerce—for both companies and workers.

W. Michael Cox is founding director of the William J. O’Neil Center for Global Markets and Freedom at Southern Methodist University. Richard Alm is writer-in-residence at the center.

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