Working Paper: NBER ID: w19176
Authors: Yi Qian; Eric Anderson; Duncan Simester
Abstract: We study how the opening of a factory store impacts a retailer's demand in its other channels. It is possible that a factory store may damage a retailer's brand image and lead to substitution away from its higher quality core channels. Alternatively, the opening of a factory store may have positive effects as it may attract new buyers and serve as a form of brand advertising. In this paper, we use a natural experiment that arises from a retailer introducing a factory store in 2002. We analyze data that spans all customers and all channels from 1995 to 2007. This allows for careful pre and post analysis of the factory store opening. We find that the introduction of the factory store led to substantial positive spillovers to the core channels that lasted for multiple years. Customers purchase more items from the higher priced, higher quality channels after the factory store is opened. These positive spillovers represent approximately 17% of all of the incremental sales that result from the factory store opening (the other 83% are contributed by sales in the factory store itself).
Keywords: multichannel retailing; spillover effects; factory store; brand management
JEL Codes: L00; M00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Factory Store Opening (L81) | Increased Spending in Core Channels (E20) |
| Factory Store Opening (L81) | Increased Spending in Higher-Priced, Higher-Quality Core Channels (D49) |
| Factory Store Opening (L81) | Purchases from New Categories (Y90) |
| Increased Spending in Core Channels (E20) | Incremental Sales from Factory Store Opening (C69) |
| Increased Spending in Core Channels (E20) | No Evidence of Cannibalization or Brand Erosion (M37) |