When Wal-Mart Enters: How Incumbent Retailers React and how this Affects their Sales Outcomes

Abstract

The authors examine incumbent retailers' reactions to a Wal-Mart entry and the impact of these reactions on the retailers' sales. They compile a unique data set that consists of incumbent supermarkets, drugstores, and mass merchandisers in the vicinity of seven Wal-Mart entries, as well as control stores not exposed to the entries. The data set includes weekly store movement data for 46 product categories before and after each entry and allows the authors to measure reactions and sales outcomes using a before-and-after-with-control-group analysis. They find that, overall, incumbents suffer significant sales losses as a result of a Wal-Mart entry, but there is substantial variation across retail formats, stores, and categories both in incumbent reactions and in their sales outcomes. Moreover, they find that a retailer's sales outcomes are significantly affected by its reactions, and the relationship between reactions and sales outcomes varies across retail formats. These findings provide valuable insights into how retailers in different formats can adjust their marketing mix to mitigate the impact of a Wal-Mart entry.