Comparing the Effect of Store Remodeling on New and Existing Customers

Topics: Environment, Sales, Natural environment Pages: 20 (15068 words) Published: October 9, 2014
Tracey S. Dagger & Peter J. Danaher

Comparing the Effect of Store
Remodeling on New and Existing
Customers

Although retailers invest millions of dollars in redesigning, refreshing, and remodeling their stores, it is unclear that such large investments are worthwhile. Prior research has indicated that remodeling has only a short-term effect. However, a previously unexplored area is its effect on those who visit the store for the first time after it is remodeled (new customers) versus those who had visited before the remodeling (existing customers). This study contrasts the effect of store remodeling on new and existing customers in two field experiments with stores that underwent a major remodeling. Treatment and control stores are used in both experiments. The authors measure sales before and after the remodeling for new and existing customers; in one store, they also measure customers’ psychological responses. In both cases, sales increased after the remodeling effort. However, sales for new customers are significantly higher than sales for existing customers after the remodel, and this difference persists for a year. Higher sales to new customers are primarily due to more new customers being drawn to the remodeled store, their higher spend per visit, and their subsequent increased visit frequency.

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Keywords: servicescape, store remodeling, field experiment, sales, store environment

store remodeling should be regarded as a marketing investment, designed to retain and attract customers, similar to mainstream advertising. As they do for various marketing
investments, managers aim to determine whether remodeling is financially worthwhile. According to Weitzel (2010), “the average total store remodel today costs $3.5 million for decor, equipment, fixtures and labor. Add in lost sales during the remodel period and the loss from markdowns and remodels ends up costing approximately $3.7 million per

store.” For retail chains with hundreds of stores, the cumulative costs are substantial. A shortcoming of prior store environment studies is that
they tend to examine changes to discrete environmental factors such as the effect of music (Chebat, Chebat, and Filiatrault 1993; Yalch and Spangenberg 1993), color (Babin, Hardesty, and Suter 2003; Bellizzi and Hite 1992), crowding (Mattila and Wirtz 2008), or shelf space (Cox 1970) on customer responses rather than the impact of an entire store remodel. Whereas early studies of store atmospherics have

focused heavily on the effect of changes in the environment
on unit sales (e.g., Cox 1964, 1970; Frank and Massey
1970), more recent studies have tended to focus on attitudes and intentions (Dubé and Morin 2001; Morin, Dubé, and
Chebat 2007; Wirtz, Mattila, and Tan 2007). An exception
is Brüggen, Foubert, and Gremler (2011), who examine
psychological responses and sales after a large-scale store
remodel and find that short-term cognitions and behavioral
intentions improve, as does average customer spending.
However, in the long run, these positive effects lose strength, making investments in store remodeling questionable.
Whereas Brüggen, Foubert, and Gremler (2011) consider the effects of remodeling on all customers, a hitherto

hopping is an everyday element in most people’s
lives. Because the in-store experience continues to
have high relevance, retailers must keep their servicescapes modern, fresh, and in line with competitors’. The look, feel, and mood of a firm’s retail or service environment are unique and crafted purposefully to contribute to the “persona” of the brand and, ultimately, its profitability. Retailers spend millions of dollars annually to create and/or remodel their store environment to influence customer perceptions and choice (Bitner 1992; Harris and Ezeh 2007). In purchase decisions, the place where the product is bought or consumed is often more influential than the product itself (Hightower, Brady, and Baker 2002). Thus, Apple has...

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