Impact of Competitor Store Closures on a Major Retailer

Abstract

We use a proprietary data set from a national US department store chain to investigate the impact of competitor store closures on a major retailer. The transaction level data set includes nearly 80 million transactions, corresponding to $2 billion in sales over a 25‐month period. We find that store sales increase with respect to a store's proximity to closed competitor locations. More interestingly, we find that online channel sales also increase in geographic locations where competitors close stores and where our focal retailer has store locations in close proximity to the markets it serves. This latter finding highlights the important role that stores play in the online channel. Stores provide a level of shopping assurance generally not available online and support customer webrooming and showrooming to mitigate purchase uncertainty. Stores are also integral to omnichannel services like return‐to‐store wherein stores provide a convenient nearby location to make a free return should an online purchase not meet expectations. Consistent with these shopping behaviors, our results demonstrate that the focal retailer, in markets affected by competitor store closures, is able to capture demand that exhibits greater uncertainty in purchases as evidenced by (i) a disproportionate increase in riskier high value vs. low value store purchases consistent with webrooming, (ii) increased online sales of product categories associated with showrooming, and (iii) an increase in return‐to‐store instances for online purchases.