Store closure during an economic downturn: a case study in retail pharmacy

The great recession in the first decade of the 21st century forced many retail chains to downsize operations. More recently, the global pandemic caused by the COVID-19 virus disrupted supply chains and severely diminished consumer spending. These events resulted in numerous store closings. When determining downsizing strategies, it is important for firms to understand the redistribution of demand that follows store closures. By taking a dynamic approach it is possible to influence the downsizing decisions of rival chains and thus recapture demand that may otherwise be lost. This paper is an extension of the study by Mayadunne et al. (2018) which introduced a solution approach to this problem based on a mixed integer-programming model. The model finds the equilibrium solution to the game between two chains that are forced to close stores in a given region. A heuristic that examines the effect of these decisions over multiple time-periods is then proposed. This paper extends both the model and application in order to glean additional insights that can be used to refine store-closing strategies.