Entry of malls and exit of stores - The role of distance and economic geography

The empirical literature on the effects of external malls on incumbent stores is inconclusive, and quantitative research on this topic is limited. In an attempt to add to the literature, this study examines the effect of the entry of external retail malls on store survival. Using a full firm population panel dataset at the store level covering the period 2000-2014, we examine the effect of a change in the distance to an external retail mall on the probability of retail store exit. In doing this we explicitly model the economic geography. We measure the economic activity in the location where these stores are situated using a market potential measure to gauge the economic density. The main result of this study is that the effects differ depending on where the incumbent firm is located. The effects on firms located in low-density areas and those on firms located in high-density areas differ dramatically. In low-density areas we find complementary effects which means that the probability of incumbent store exit is lesser. In high-density areas the estimated effect is the opposite, the entry of a new external mall increases the probability of incumbent store exit. The strength of the effects is dependent on the distance between the incumbent firm and the newly established external mall. Additionally, the size of effects differs between different parts of the retail sector. Effects remain over a number of years after entry of external malls but become smaller over time.