Physical Stores in the Digital Age: How Store Closures Affect Consumer Churn

Abstract

In this study, we investigate how consumers derive value from having the option to use physical stores for their transactions in the DVD rental market. We analyze data from consumers who subscribed to an online‐offline video rental service from a leading company that closed a large number of physical store locations during our study period. We quantify the extent to which offline store closures induced individuals to terminate their subscriptions with our focal company. We further examine how physical store closures affected customers’ churn decisions differently for individuals who either heavily or lightly used physical stores for their transactions. Our results show that the closure of a physical store in a zip code increased customer churn by approximately 50% for heavy users of physical stores compared to no increase for light users. Our findings suggest the presence of substantial heterogeneity across customers regarding how much utility they derived from having the option of using physical stores for their transactions.

Impact of Competitor Store Closures on a Major Retailer

“…As indicated by the contributions of Soysal et al. (2019) and Zentner et al. (2013), former customers of a closed store may, instead of switching to a different store location, switch their shopping to another channel.…”

“…Further exploring customer churn, Soysal et al. (2019) employ a transaction level data set from a video rental firm and show that store closure increases the churn rate around 50% for users that frequently use the physical store while it does not have any effect on light users. In another study of a video rental firm, Zentner et al.…”

“…The higher the cannibalization, the smaller the loss due to store closures. Further exploring customer churn, Soysal et al (2019) employ a transaction level data set from a video rental firm and show that store closure increases the churn rate around 50% for users that frequently use the physical store while it does not have any effect on light users. In another study of a video rental firm, Zentner et al (2013) study the relationship between channel choice and product choice of consumers.…”

“…As indicated by the contributions of Soysal et al (2019) and Zentner et al (2013), former customers of a closed store may, instead of switching to a different store location, switch their shopping to another channel. After all, customer choice involves maximizing utility and given heterogeneous customer valuations, once a store closes the next best option may be online.…”

“…While research on store closures is sparse, there are a few interesting contributions to the literature that are helping to increase our understanding of how store closures affect consumer behavior and hence, impact the retailers that close them (e.g., Haans and Gijsbrechts 2010, Soysal et al 2019, Zentner et al 2013. We are not, however, aware of any empirical research that addresses the impact of store closures on competitors.…”