Physical stores in the digital age: How store closures affect consumer churn

摘要

Though e-commerce is growing more rapidly than traditional commerce, a growing number of retailers seek to understand the complex ways in which online and offline channels interact with each other - a phenomenon dubbed omnichannel strategy. This study investigates to what extent consumers derive value from the option to use physical stores for transactions. Data for the study was obtained from a unique panel dataset including granular information at the transaction level from a leading video rental company that closed a large number of its brick-and-mortar stores during the study period. The data contains information on the dates customers signed up and cancelled their subscriptions with the focal company, which is termed customer churns. A unique characteristic of having a subscription with this company was that it not only allowed consumers to return DVDs via mail, but also allowed consumers to exchange DVDs received in the mail at physical stores. Hence, consumers derive utility from having the option of using physical stores for DVD rentals. The study shows how physical store closures induced individuals to terminate their subscriptions with the focal company. The findings show that closure of a physical store in a zip code increased the churn rate by approximately 50% for heavy users of physical stores. The increase in the churn rate was materially insignificant for light users of physical stores.