JCPENNY CENTER FOR RETAIL EXCELLENCE

Research

JCPenney Center for Retail Excellence
RESEARCH AGENDA

CROSS-FORMAT SHOPPING

How do shoppers spend their money across retail formats?
"Consumer Shopping and Spending Across Retail Formats"
Edward J. Fox, Alan L. Montgomery and Leonard M. Lodish

Responding to the threat posed by alternative retail formats, the grocery industry has adopted the cost initiatives recommended by the Efficient Consumer Response (ECR) study. Our study helps retailers understand the nature of competition between grocery stores and mass merchandisers and how assortment, pricing, and promotional policies affect retailer revenues in different formats. We develop models to estimate store choice and packaged goods spending at the household-level as a consequence of the marketing policies of stores in four retail formats. We also capture the effects of household demographics and travel costs for each store chain. The resulting system of equations is specified as Multivariate Type 2 Tobit, a model that has not previously been applied in published research.

We find that assortment has a greater influence on shopping behavior than promotional intensity and travel time. This is particularly interesting in light of industry initiatives to reduce category assortment levels.

Why do shoppers go to multiple store formats?
"Every House a Warehouse: an Inventory Model of Multi-Store Shopping Behavior"
Edward J. Fox, Richard Metters, and John Semple

Households seldom shop exclusively at a single retail format, or a single store within a format, preferring to spread their store visits and purchases across multiple retailers. This research suggests that houses are like warehouses for shopping goods, in that consumers store, draw down, and then acquire those goods by shopping. The authors develop a household inventory model that explains why many consumers sometimes shop at (1) nearby stores with higher prices, while other times choosing (2) distant stores with lower prices. Shoppers' choice of store and purchase quantity depend on when they shop (time between trips), their household consumption rate, and the costs of shopping at each store.

Our model predicts the existence of a segment of "store switchers," who make substantial purchases at both types of stores. More importantly, we predict that those store switchers will stockpile at the low-price store, based solely on its low average prices. This excess inventory is purchased as a hedge against future costs and is not used to replenish the household's immediate consumption needs. Our model also predicts that the type of store previously visited affects the store chosen on the current trip, which systematically leads to more store switching. All of our predictions are supported by an empirical analysis of syndicated panel data collected over two years in a major US market. Of particular interest, we find that the excess amount stockpiled at low-price stores represents approximately 29% of the overall market basket.

What causes the mix of retail formats in a market?
"Retail Market Structure: The Roles of with Consumer Heterogeneity and Retailer Differentiation."
Aruna Apte, Uday Apte, and Edward J. Fox

Retail markets are comprised of a variety of retail formats, yet the rationale for the existence of these formats is not clear. Some formats offer the benefits of one-stop shopping across many types of products; others offer neighborhood convenience and/or specialization. This research explores the factors that determine the degree of retailer differentiation, i.e., the variety of retail formats in a geographic market.

We find that retail formats only exist when products sold in the market have different inter-purchase times. Heterogeneous consumer preferences are also necessary for retail formats. If consumers are uniformly price-sensitive or convenience-sensitive, there is little format variation. Using panel data for packaged goods in a major US market, we show that the variety of store formats selling packaged goods depends on heterogeneity in consumer preferences for price and convenience