Sales Drops from Closing Shops: Assessing the Impact of Store Outlet Closures on Retail Chain Revenue

Although store closures have become a common feature in grocery retailers’ strategic decisions, knowledge about their implications remains minimal. In this article, the authors study how closure of a particular store affects the chain sales of a multioutlet retailer operating multiple formats. The authors show that the chain sales losses from a closure vary widely across outlets (ranging from less than 30% to more than 80% of the closed outlet's revenue) and depend not only on the closed store's format and distance to competitors but also on the profile of its clientele and type of shopping trip. The authors offer a methodology for predicting the magnitude of these losses for specific store closures that outperforms models calibrated on observed “regular” shopping patterns. This approach offers guidance to retailers in deciding whether a particular store closure is beneficial to the chain or, if the objective is to prune an overly dense network, which of a set of local outlets is the best candidate for closure.

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