Document Type

Article

Publication Date

Summer 6-2-2020

Journal Title

Production and Operations Management

DOI

https://doi.org/10.1111/poms.13226

Version

Post-print: the version of the article having undergone peer review but prior to being published

Disciplines

Business | Business Administration, Management, and Operations | Management Sciences and Quantitative Methods | Operations and Supply Chain Management

Abstract

Warehouse club (WC) retailers have typically expanded to new markets using stand‐alone stores, rather than pursuing dense store networks as other (non‐WC) retailers have in the past. While this strategy generates operating efficiencies, it also imposes high travel costs on households to shop, which calls into question WC stores’ resilience to spatial competition from stores operating other formats. We examine this phenomenon by using data on households’ shopping activity across markets served by Costco Wholesale stores. Specifically, we evaluate these stores’ resilience to spatial competition by estimating the share of households’ expenditures relative to travel costs to shop at the stores and comparing this estimate with that for non‐WC stores. Controlling for households’ travel costs across Costco and non‐WC stores, we find that households’ share of expenditures at Costco stores exceeds the share at non‐WC stores by 61%. This suggests that Costco stores have an advantage over non‐WC stores when serving market areas with sparse store networks. Nevertheless, we also find that this advantage diminishes with the distance between Costco stores and households and that there is a finite distance beyond which this advantage disappears. We show that this distance (approximately 21 miles) is an important reference point for the evaluation of spatial competition between Costco stores and other stores and the examination of demand saturation at Costco stores.

Notes

This is the peer reviewed version of the following article: Lim, S.F.W.T..,et al. Shopping Activity at Warehouse Club Stores and Its Competitive and Network‐Density Implications. Production and Operations Management (2020) which has been published in final form at https://doi.org/10.1111/poms.13226. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.

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