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

We utilize the event of store opening by a large apparel retailer and use customer-level data to estimate 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. Drawing on the theory of planned behavior and prospect theory, we propose two mechanisms to explain this complementary effect of store presence on online purchases by existing customers. These mechanisms are the store engagement effect—customers making higher online purchases because of higher engagement from store interactions—and the store return effect—reduced risk of online purchase because of the option of store returns. We provide direct empirical evidence of these mechanisms on customer-level data. We further show that these effects increase as customers’ distances from the retailer’s store reduce because of the store openings. Our findings have significant implications for multichannel retailers.

The online appendices are available at https://doi.org/10.1287/isre.2018.0814.