The Effect of Retail Store Environment on Retailer Performance

Retail stores are segmented using socioeconomic characteristics of the environmental variables both within and outside the store. trade area, and it is shown that the effects of store environment on store The internal retail environmental variables include retailers’ performance vary across segments. Store performance is measured by a micro-marketing strategies and the external retail environment market-based measure—sales and a productivity-based measure—sales that pertains to the neighborhood location and trade area per square feet. The internal store environment includes the number of demographics. The effect of the influence of retail environment checkout counters per square foot of selling area, the number of nongrocery on retail performance is studied using data for 646 grocery products sold (extent of scrambled merchandising), whether the store at stores across the United States. A.C. Nielsen provided this least doubles manufacturers coupons, whether there is a banking facility, Market Metrics data. We add to the past literature on retail and whether the store is open for 24 hours. The external store environment atmospherics and retail performance (see Ghosh and McLafincludes the type of neighborhood it is located in. A methodology for ferty [1987]; Wrigley [1990]; and Rogers [1992] for excellent predicting store performance (for existing and new stores) based on the reviews) by showing how such information can be used by type of environment and store location by using aggregate secondary data retailers to improve store performance. is demonstrated. The proposed models are estimated and validated using Past research has shown that store performance is influMarket Metrics geodemographic data for 646 grocery stores provided by enced by variables such as trade area demographics including A.C. Nielsen. It is shown how the findings of this retail environment study population and socioeconomic characteristics (Craig, Ghosh, can be used to offer guidelines to retailers for attaining desired levels of and McLafferty, 1984), level of competition (Ghosh, 1984), sales and sales per square feet by using readily available data. J BUSN RES retail atmospherics including location on intersection, sales 2000. 49. 167–181.  2000 Elsevier Science Inc. All rights reserved. area, credit card service, number of checkout counters, number of aisles (Jain and Mahajan, 1979), and promotions (Walters and Rinne, 1986; Walters and MacKenzie, 1988). In recent years, the grocery store industry has become increasingly comRetailing atmospherics have been used to create differpetitive, and therefore additional variables, particularly those ences across stores in order to exploit consumer charrelated to the effects of actions taken by the retailer, need acteristics and the competitive environment (Kotler, to be studied. For example, retailers are looking at ways to 1973; Hoch, Byung-Do, Montgomery, and Rossi, 1995). In differentiate themselves from competition by increasing the the past, marketers’ ability to test the variations in retail atmolevel of service at checkout and adding services, such as keepspherics was constrained because of nonavailability of data ing the store open for 24 hours. They are using promotions covering a wide range of variables across a cross-section of such as double or triple couponing, selling a variety nongroretailers. However, with the advent of technology, marketers cery products (scrambled merchandising), and locating stores now have access to such data on a wide range of variables in smaller markets with an intent to improve store perfor(for example, the Market Metrics data in the United States). mance. To the best of our knowledge, no past study has In this study, we use a broad definition of retail atmospherics, which represents the retail environment. We use a unique data set covering a wide range of variables related to retail 1 Performance is measured as dollar sales, sales per square foot, market share, retail patronage, store choice, store traffic, and store profits in different studies. 2 Other studies (Walter and Rinne, 1986; Walters and MacKenzie, 1988) Address correspondence to V. Kumar, Marvin Hurley Professor of Business have explained performance by using promotional variables, such as double Administration, Melcher Faculty Scholar and Director of Marketing Research Studies, University of Houston, Houston, TX 77204-6283. couponing, but have not addressed the range of store environment variables.