Physical Stores in the Digital Age: How Store Closures Affect Consumer Churn

Abstract

In this study, we investigate how consumers derive value from having the option to use physical stores for their transactions in the DVD rental market. We analyze data from consumers who subscribed to an online‐offline video rental service from a leading company that closed a large number of physical store locations during our study period. We quantify the extent to which offline store closures induced individuals to terminate their subscriptions with our focal company. We further examine how physical store closures affected customers’ churn decisions differently for individuals who either heavily or lightly used physical stores for their transactions. Our results show that the closure of a physical store in a zip code increased customer churn by approximately 50% for heavy users of physical stores compared to no increase for light users. Our findings suggest the presence of substantial heterogeneity across customers regarding how much utility they derived from having the option of using physical stores for their transactions.