(FORTUNE Magazine) – The long-awaited lift in service sector productivity seems finally to have arrived in, of all places, the huge but heretofore notoriously unproductive retail trade. Economist Bruce Steinberg of Merrill Lynch calculates that total < retail sales per employee bottomed in the spring of 1991 and have been improving ever since. Now they're rising at a brisk 4.5% annual rate (see chart). What makes this gain impressive is that it is taking place in a period of sluggish consumer spending: Because of anemic income growth, retail sales are rising far more slowly than they did in the mid-1980s. Unlike past productivity spikes, which quickly dissipated as merchants added stores and employees to meet rising consumer demand, the current gains should endure. Retailers are finally getting an efficiency kick from the billions they have invested in technology over the past decade. By integrating computer networks from the cash register to warehouses and back to suppliers, they have greatly improved inventory management and speeded delivery of merchandise. But these technology-driven productivity gains are also intensifying cutthroat competition, forcing retailers to pass on cost savings to shoppers and further widen their search for efficiencies. Merchandisers who can't keep pace with the productivity leaders are being mowed down. Last year a record 19,000 retail companies slipped into bankruptcy, according to Management Horizons, a consulting outfit in Columbus, Ohio. The firm's chief economist, Carl Steidtman, notes that retailers' profit margins have shrunk to just 1.2% -- the lowest in 38 years. He predicts that half of all retailers will be bankrupt or acquired by 2000.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: MERRILL LYNCH CAPTION: RETAIL PRODUCTIVITY GAINS