How offline retailers adopt O2O: Neighboring star shops and their proximity effect

Abstract For small to mid-sized offline retailers, a new e-commerce model called online-to-offline (O2O) enables the integration of physical and online channels through a platform-based aggregator. However, many offline stores are still reluctant to accept O2O. This study investigates how the existence of a neighboring star shop(s), defined as a shop that has generated large revenues in the early stage of O2O adoption, and the proximity to the neighboring star shops in offline settings matter in the initial adoption of O2O. We applied the Cox proportional hazard model, based on operating data from Naver Shop Window, an O2O service in South Korea. Our results show the existence of a neighboring star shop and the distance to it in offline settings are major determinants of O2O adoption. This study extends the academic discussions on the opinion leader's role in the offline environment to the O2O environment and provides strategic implications for practitioners who want to spread O2O.