Journal Article

Why Do Stores Drive Online Sales? Evidence of Underlying Mechanisms from a Multichannel Retailer

Mehra, Amit, Kumar, Anuj, Kumar, Subodha

2019

Overview

Traditional retailers are closing down their brick and mortar stores and increasing investments in their online channels. This may not be a beneficial strategy for retailers selling nondigital products, such as apparel, which customers prefer to physically evaluate to make the purchase decision. In such product categories, retailers’ physical stores could influence the sales on its online channel. We utilize the event of store opening by a large apparel retailer and use customer-level data to examine the effect of store presence on the online purchase behavior of its existing customers. We find that the retailer’s store openings resulted in an increase in online purchases from such customers for two reasons. First, higher store interactions engaged customers with the retailer’s brand, which resulted in their higher online purchases. Second, customers could freely purchase apparel from the retailer’s online channel, because they had the option to return it at a nearby store if it did not fit their expectations. Multichannel retailers should organize store events to engage customers and design lenient return policies to reduce the risk of purchase from online channel. We utilize the event of store opening by a large apparel retailer and use customer-level data to estimate the effect of store presence on the online purchase behavior of its existing customers. We find that the retailer’s store openings resulted in an increase in online purchases from such customers. Drawing on the theory of planned behavior and prospect theory, we propose two mechanisms to explain this complementary effect of store presence on online purchases by existing customers. These mechanisms are the store engagement effect —customers making higher online purchases because of higher engagement from store interactions—and the store return effect —reduced risk of online purchase because of the option of store returns. We provide direct empirical evidence of these mechanisms on customer-level data. We further show that these effects increase as customers’ distances from the retailer’s store reduce because of the store openings. Our findings have significant implications for multichannel retailers. The online appendices are available at https://doi.org/10.1287/isre.2018.0814 .

• Publisher: INFORMS,Institute for Operations Research and the Management Sciences
• Subject: average treatment effect / Clothing stores / Consumer behavior / Customers / e-commerce / Evaluation / Industry sales and revenue / matching estimators / multichannel customer behavior / omnichannel retail / Online sales / Online shopping / Research Commentary / Retail stores / Risk management