The Value of Retail Stores in the Digital Age
With increasing ecommerce penetration, consumers are spending more time shopping online and away from physical stores. This brings to question the role of physical stores in an increasingly digitized landscape and whether they remain relevant.
In an increasingly multichannel environment, it is difficult to measure cross-channel effects. For example, would that increase in online sales have happened if customers hadn't first seen the products showcased in a physical store? Such information is not typically observed and captured. Should physical stores prove to have some kind of effect on digital sales, which products should be showcased?
This study attempts to shed light on these questions using a quasi-experiment at a nationwide retailer that expanded its physical presence during the study period. This work is unique in that it demonstrates consumer purchasing behavior in the Chinese retail market, one of the largest global economies in the recent years. The analyses show that online sales for products showcased in physical stores have increased in locations that had newly opened physical stores, indicating that these offline stores exert a positive complementarity on online purchase. This increase in online sales is shown to happen for both high and low involvement products, suggesting that two possible mechanisms are at work. Not only do stores play the role of allowing consumers to reduce product uncertainties through product inspection, the showcasing of products in store also creates a familiarity effect that generates top-of-the-mind awareness needed to drive subsequent online purchases.
This work informs retailers who are pondering decisions of offline expansion. The results of the work show that physical stores remain valuable in the digital era, as they fulfill roles that help consumers converge towards product purchases. On top of that, study findings provide consumer-related insights to managers who are interested in having international presence outside the western retail market.
Methods & Tools
- Advanced Econometrics (Difference-in-Difference-in-Difference, Matching)
- MySQL, Stata, R
Chan, J, Chen, X., Xu, K., and Wang, Y. "The Role of Physical Stores in the Digital Age: Quasi-Experimental Evidence from Product Level Analysis", Working Paper.