When Walmart Enters : How Incumbent Retailers React and How This Affects Their Sales Outcomes

The authors examine incumbent retailers' reactions to a Wal-Mart entry and the impact of these reactions on the retailers' sales. They compile a unique dataset which represents a natural experiment consisting of incumbent supermarket, drug, and mass stores in the vicinity of seven Wal-Mart entries and control stores not exposed to the entries. The dataset includes weekly store movement data for 46 product categories before and after each entry and allows them to measure reactions and sales outcomes using a before-and-after-with-control-group analysis. They find that, overall, incumbents suffer significant sales losses due to Wal-Mart entry, but there is substantial variation across retail formats, stores, and categories both in incumbent reactions and in their sales outcomes. Moreover, they find that a retailer's sales outcomes are significantly affected by its reactions, and the relationship between reactions and sales outcomes varies across retail formats. These findings provide valuable insights on how retailers in different formats can adjust their marketing mix to mitigate the impact of Wal-Mart entry