Inter‐Retailer Channel Competition: Empirical Analyses of Store Entry Effects on Online Purchases

Abstract

This study empirically examines the effect of offline store entry on a competing online retailer in the footwear industry and investigates how this effect depends on the relative product assortment and price between the offline store and the online retailer. Using transaction data from a large online footwear retailer and offline store entry data from 19 major shoe retail chains and 3 department store chains, we quantify the entry effect of offline stores. Categorizing offline stores by assortment and price, we find that the entry of regular‐price narrow‐assortment stores generates a complementary effect that increases online purchases, while the entry of discount wide‐assortment stores leads to a substitution effect that reduces online purchases. The store entry of other types has no significant effect on online purchases. We further find that the complementary effect is mainly driven by the mechanism of unsatisfied product exploration due to a narrow assortment in stores, rather than the mechanism of product uncertainty reduction due to overlapping products with lower prices online. Therefore, the complementary effect not only increases the online purchases of store‐brand products but also creates spillovers to other brands. Moreover, the substitution effect driven by the reduced transportation cost is mitigated primarily by consumers’ proximity to pre‐existing stores.

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