Why Do Stores Drive Online Sales? Evidence of Underlying Mechanisms from a Multichannel Retailer

Traditional retailers are closing down their brick and mortar stores and increasing investments in their online channels. This may not be a beneficial strategy for retailers selling nondigital products, such as apparel, which customers prefer to physically evaluate to make the purchase decision. In such product categories, retailers’ physical stores could influence the sales on its online channel. We utilize the event of store opening by a large apparel retailer and use customer-level data to examine the effect of store presence on the online purchase behavior of its existing customers. We find that the retailer’s store openings resulted in an increase in online purchases from such customers for two reasons. First, higher store interactions engaged customers with the retailer’s brand, which resulted in their higher online purchases. Second, customers could freely purchase apparel from the retailer’s online channel, because they had the option to return it at a nearby store if it did not fit their expectations. Multichannel retailers should organize store events to engage customers and design lenient return policies to reduce the risk of purchase from online channel.