October 28, 2021

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Haas study notes impact of chain businesses on local business closures

A study from UC Berkeley researchers found that during the beginning of the COVID-19 pandemic, the closing of large chain businesses had a strong influence on the closing plans of independent businesses in the same neighborhoods. 

The study, conducted by researchers from the Haas School of Business, found that a local business is 3.5% more likely to close the next day if a chain business was closed the day prior, according to a press release from the school of business.

The researchers used cell phone data to track customers’ daily visits to 230,403 local businesses in the same industries and ZIP codes as chain outlets connected to 319 national brands, the press release stated.

“Using this high resolution cell phone data, we are able to measure when a particular store is likely to have closed on a daily basis,” said Abhishek Nagaraj, co-author of the study and assistant professor at the Haas School.

The data was collected between March 1, 2020, and April 15, 2020, and allowed researchers to pinpoint if an establishment was open or closed on each day in that time period, the press release stated.

Nagaraj noted the team used a regression analysis, which showed that chain and local businesses in a neighborhood might close due to the influence of a third factor, such as COVID-19 cases. 

This process where one factor influences the other is called social influence, but it is still hard to only capture the effects of a chain on an independent store, Nagaraj stated.

According to Nagaraj, the methodology used by the research group to resolve this issue was by utilizing the fact that companies make national decisions that impact all their stores.

“These national effects can be used to reliably estimate these social influence effects,” Nagaraj said.

In one case, the research team found that all six fitness centers in the same ZIP code as a closed Orangetheory gym were also closed. Similarly, three out of five fitness centers that were in the same neighborhood as an open Anytime Fitness gym were also open, the press release stated.

Nagaraj added that it is important to examine how chain businesses set the tone for their employees and impact other businesses in the industry.

Saqib Mumtaz, a Haas doctoral student and co-author of the study, noted this could aid governments in successfully implementing plans for local businesses.

“Understanding organizational decision making during tumultuous times such as a global pandemic can help local governments design more effective policies to positively influence the behavior of local establishments,” Mumtaz said in an email.

Rina Rossi is a business and economy reporter. Contact her at [email protected], and follow her on Twitter at @RinaRossi8.

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