Adding bricks to clicks

de Jill Avery

We assess the effects of opening physical retail stores on direct-to-consumer channel sales. Our data come from a leading U.S. retailer which opened four new stores over several years in different retail trading areas. We hypothesize two effects, cannibalization and complementarity, and conjecture that the magnitude of these effects may change over time and may differ between the catalog and online channels. We find that opening retail stores cannibalizes sales in the catalog channel in the short term, but produces complementary effects in both the catalog and the online channels in the long term; the complementary effects, which are magnified in the online channel, more than overcome the initial losses in the catalog channel. Customer analysis suggests that opening retail stores paves the way for higher rates of customer acquisition and higher rates of repeat purchasing among existing customers in the direct channels in the long term. Our results are based on intervention analysis with a treatment/control group design. We achieve greater balance between the groups by matching zip codes in the treatment and control regions; these procedures have been developed by scholars in other fields to approximate datasets that would have resulted from random experimentation.

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