A Gravity Model for Retail Store Entry
(R2023-117158)

AUTHORS

Boram Lim, Hanyang University; Harsha Kamatham, University of Manitoba

ABSTRACT

We build an empirical framework of retail store location choice for a retail chain manager based on the law of retail gravitation, the foundational theory of store choice. We estimate the model using household loyalty-card data from a multichannel retail chain located in metropolitan areas. Along with size of retail outlet, prices, promotion, and distance to a retail store, we particularly measure and quantify the effects of (i) the distance of a retail store from households’ residence, and (ii) the actual weight of the shopping basket on the store-choice decision. In particular, to our best knowledge, this paper is the first in the literature to quantify the effect of actual weight of the shopping basket `a la the law of retail gravitation. We also find that when the weight of a basket increases by one pound, the likelihood of choosing the nearest brick-and-mortar store increases by 1.43%. In a counterfactual analysis, we identify and compare the profitability of candidate locations for a potential new chain store