Publication: Inferring the economics of store density from closures: the Starbucks made
Program
KU-Authors
KU Authors
Co-Authors
Publication Date
Language
Type
Embargo Status
Journal Title
Journal ISSN
Volume Title
Alternative Title
Abstract
This paper proposes a method that makes use of firms' mass store closures to measure the store network effects of cannibalization and density economies. I calculate each store's contribution to chain-level profits via one-store perturbations on the set of retained stores, and map these onto the firm's closure choices. To separate the demand and supply-side store network effects, I exploit the fact that the business-stealing effect intensifies with local network density, whereas the supply-side disadvantage prevails at sparse regions of the network. I apply the method to study the Starbucks chain. The average rate of cannibalization imposed by a neighbor outlet is 1.2% within one mile and 0.4% within one to three miles. For remote outlets, operation costs increase by 0.3% of revenues for each mile of distance from the network. Counterfactual analyses suggest that income level is a more important determinant of demand than population count at low levels of store penetration, whereas high-population regions can sustain denser store networks because of the softening of the cannibalization effect.
Source
Publisher
Informs
Subject
Business
Citation
Has Part
Source
Marketing Science
Book Series Title
Edition
DOI
10.1287/mksc.2017.1078