What is happening to my nearby stores? The own- and cross-effect of a radical store transformation on existing customers

Breugelmans, Els; Hermans, Marleen; Krafft, Manfred; Kroschke, Mirja; Lehmkuhle, Felix; Mantrala, Murali

Abstract

Brick-and-mortar grocery retailers that undertake major format changes often do so in a staggered rollout and radically transform just one store at a time. This approach begs two questions: What effects does a radical store transformation have on existing customers’ sales at the transformed store (own-effect) and at the chain’s nearby untransformed stores (cross-effect)? Do the effects vary with customer characteristics? These questions are investigated using a quasi-field experiment of a staggered radical store transformation of a German retailer. Conventional wisdom would predict cannibalization of nearby untransformed stores’ sales. However, applying our proposed theoretical framework shows, for this empirical case, a negative own- but a positive cross-effect on existing customers. Further, existing customers who had a greater preference for and shopped more at the old format are most likely to migrate. Thus, nearby untransformed stores can help retain existing customers who may get turned off by a radical store transformation.