The Impact of Inter-Departmental Distance on Joint Sales in Retail Stores

We find that inter-departmental distance between two departments in a store can significantly impact joint (combined) sales of that pair. Using data from blueprints and sales across 64 stores for 52 weeks, along with an experimental study to test our theorizing, we find a curvilinear (inverted U-shaped) relationship between inter-departmental distance and joint sales. Specifically, close departments are perceived to be substitutes, decreasing the likelihood of buying products from both departments. As distance increases, departments are perceived as somewhat related but different, increasing their diversity and the likelihood of buying from both departments. As distance between departments becomes large and products are seen as unrelated, the likelihood of buying from both departments decreases. This relationship is moderated when departments have non-identical layouts and when there are larger variety differentials across departments. Accordingly, we determine an optimal store layout using BARON solver by maximizing total store revenue. Our results suggest an increase in weekly revenue of about 4.08% for supermarkets (range of -.67% to 9.50%) and 3.20% for hypermarkets (range of .82% to 8.5%). While strategic locations of departments can help retailers increase overall sales, prior empirical work has not studied the impact of distance between departments at the store level.