The Impact of Wal-Mart Supercenter Conversion on Consumer Shopping Behaviors

Abstract

This paper presents an empirical study of the impact of Wal-Mart supercenter conversion (i.e., expansion of traditional discount-format stores by adding new departments) on consumer shopping behaviors. By using a difference-in-difference estimator and a joint model of store visits and expenditure based on a zero-inflated Poisson model and a log-linear model, we find that Wal-Mart gains 42% in weekly revenue from the conversion. Decomposing the revenue gains into components attributed to store visits and per-visit expenditures, we find that the majority of these gains were due to larger expenditures, with a much smaller impact from store visits. In contrast, among competing retailers, grocery stores experience the most significant loss (20% weekly revenue) mostly from fewer store visits, with a much smaller impact from per-visit expenditure. Taken together, these findings show that consumers may benefit from reduced shopping costs by making fewer overall trips and increasing their Wal-Mart basket sizes. In addition, we find that overall revenue gains for Wal-Mart from the conversion outweigh the small cannibalization loss at the existing Wal-Mart supercenters located farther away. Finally, from category-level analyses, we find evidence of increases in category-level spending in pre-existing categories in the converted supercenter. However, we also find that the increase in category-level spending is limited only to food categories and that there are no changes in spending in the non-food categories. We discuss the implications of our findings for academics and retail managers.

Keywords: Wal-Mart supercenter, retailer competition, demand externality, revenue economy of scope, one stop shopping, demand spill-over, inter-format competition

JEL Classification: M31, L81