Reframing Cannibalization in Retail Strategy

How to measure and embrace it

The tl;dr

1. Cannibalization has a bad wrap: in retail, damaging your comp store sales growth rate is often considered an enormous risk

2. But not all cannibalization is bad, and it’s also a requirement to scale

3. Get comfortable with cannibalization by adjusting your business cases to focus on just the incremental impact

4. Sense check your estimates with some simple math

Cannibalization is a term that is used widely in retail

• E-Commerce: introducing new products to your assortment may result in shifting consumer spend on one product or category to another

• Wholesale: bringing in new brands may similarly result in shifting consumer spend from brand A to brand B

• Retail: opening a new store may cannibalize customers from an existing store

The difference with Retail is that it’s a lot more rooted in geography than consumer behavior — which means you can get a little more scientific about how to measure its risk ahead of time, and even measure the impact in retrospect.

As with all things related to stores, being able to estimate or measure cannibalization starts with understanding your stores’ unique trade areas.

DTC brands are uniquely positioned to predict and measure cannibalization

Because the foundation for all things retail is a trade area, and because omnichannel DTC brands generally have rich customer address data across stores and e-commerce, there are numerous ways to measure cannibalization:

1. Trade area overlap

2. Difference of differences: benchmarks

3. Difference of differences: trajectories

The trade area model

If you have even one store, you can accurately measure its trade area. That trade area definition can then be applied to the new site. There are many ways to do this, and lots of caveats along the way, but here is a simplified example:

Step 1: Measuring your trade area

This illustrative trade area shows that a 40min drive time captures 80% of customers.

Pareto curve illustrating the isochrone that captures 80% of sales.

Based on these illustrative findings, let’s go with 40min drive time as our “trade area.”

Step 2: Apply the trade area to the new site
Here’s where things get a little subjective, and will take a bit more of a trained eye to think about:

Blue = Existing Store Customers; Red = most at-risk of cannibalization impact from New Store