Theories have suggested that employee diversity can affect business performance both as a result of customer preferences and through changes of relations within the workplace. We examine these theories with data from more than 700 retail stores employing over 70 000 individuals, matched to census data on the demographics of the community. While past theories predict that increasing the similarity between employees and customers will increase sales, we find no consistent relationship. The exception is that Asian employees appear to be most productive when many nearby residents are Asian immigrants who do not speak English. Diversity of gender and race within a store had no important effect on sales, while age diversity predicted lower sales. Copyright © 2004 John Wiley & Sons, Ltd.