Retail cannibalization occurs when consumers shift their business to a new product or store within a brand’s portfolio, causing a decline in sales for older products.
Expansion can mean more customers, higher profits, and a bigger brand reputation. But, if done haphazardly, it can also mean the opposite. Retail cannibalization is when a business opens a new store or offers a new product, and that store or product displaces an existing one. In short, it’s a way of losing business in one area to gain it in another.
Rather than helping businesses grow, retail cannibalization can be a major setback, as launching new products or stores generally requires upfront investment. In some cases, businesses strive to reach new customer segments, but end up losing others. In other cases, it’s a deliberate strategy to shift customers to a fresher product and ease out an older product.
To calculate or evaluate their retail cannibalization, businesses can identify the number of lost sales on a particular older product as a percentage of sales for a new product.