2024/04/03 by S.J. Han, Han, Shanyu, Lei Jian +3
Business, Management and Accounting · Economics, Econometrics and Finance · #Economic theories and models #FOS: Economics and business #Firm Innovation and Growth #Supply Chain and Inventory Management #Theoretical Economics (econ.TH)
paper · pdf · doi:10.48550/arxiv.2404.02426
openalex publication_date 2024/04/03 · openalex created_date 2024/04/05 · openalex updated_date 2026/07/28
The consumer store is ubiquitous and plays an important role in our everyday lives. It is an open question why stores usually have such short life cycles (typically around 3 years in China). This paper proposes a theoretical framework based on an equilibrium in style supply of stores and style demand of consumers to characterize store cash flow (revenue), leading to a strong explanation of this puzzle. In our model, we derive that the preference shifting of consumers is the main reason for the cash flow decreasing to its break-even line over time, while the visibility broadening leads to initial growth, resulting in rainbow-shaped cash flow and its life cycle. Moreover, the intensified spatial competition will lead to an unexpected decrease in the store's cash flow, or even closure. We calibrate our model with proprietary data of three Chinese stores from three representative industries and study the relationship between customers' preference shifting and cash flow. To our knowledge, there have been no prior attempts to quantitatively model the life cycle of the store.