Adding Bricks to Clicks: Does Opening Retail Stores Help or Hurt a Retailer's Online Sales?

Aug 08, 2012, 10:07 ET from American Marketing Association

CHICAGO, Aug. 8, 2012 /PRNewswire-USNewswire/ -- In the short run, direct channel sales are cannibalized by the opening of retail stores; however, in the long run, sales in both the online and catalog channels benefit from the presence of retail stores. 

The enduring global recession has put immense pressure on retailers.  Pressure is mounting for managers to eliminate inefficiencies in their channel portfolios, and, in an increasingly digital world, many are taking the axe to their retail store operations to fund their digital footprints.  Gap is closing 200 U.S. stores, while Lowe's is closing twenty stores and scaling back its plans for store expansion.  Once, there was optimism among retailers that offering customers different channels for purchase would create synergy, with stores acting as billboards for the brand, catalogs providing enticing reminders to buy, and the Internet providing an ever-present storefront.  Today, that optimism has been replaced by a lingering fear that channels merely cannibalize customers and sales from each other, without adding any incremental value. The high fixed cost of brick and mortar retailing and consumers' increasing use of more profitable e-commerce and catalog channels are combining to make retail storefronts seem redundant and excessively expensive to run in today's marketplace. 

Consider a common predicament faced by retailers today.  They may own stores, distribute a catalog, and make a website available to their customers.  Do these channels work together or do they compete with one another?  How does the opening or closure of one channel affect the others? In today's increasingly digital world, with more ways to reach customers, should retailers build fewer or more stores?  The answers to these questions are crucial for planning channel expansion and contraction strategies as retailers try to rationalize their operations to reduce costs.  Channels can, in principle, both hurt and help each other.  Do catalogs steal sales from websites or do their glossy display of products drive consumers online to access the full assortment? Will consumers stop patronizing stores with limited hours since websites offer 24/7 shopping, or will shopping online prompt them to visit stores so that they can experience products live?  We test how these opposing forces play out in the behavior of shoppers, using data supplied by a retailer of high-end apparel, accessories, and home furnishings.  We study what happens to catalog and Internet sales when our retailer opens new stores. When a new store opens, it's reasonable to expect that its immediate effect on catalog and online sales is negative, but what happens in the longer run, as the store introduces new shoppers to the retailer's brand? 

The analysis, "Adding Bricks to Clicks: Predicting the Patterns of Cross-Channel Elasticities Over Time," by Jill Avery, Thomas J. Steenburgh, John Deighton, & Mary Caravella appears in the May 2012 issue of the American Marketing Association's Journal of Marketing. 

"In the long run, sales in both the online and catalog channels benefit from the presence of retail stores.  The physical presence of a store attracts new customers to the direct channels and encourages existing customers to buy more," concludes Dr. Jill Avery, assistant professor marketing at the Simmons School of Management.

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