Finance Glossary

Toys “R” Us shuttered its physical stores in part due to competition from its own online store. Image Credit: JJBers (CC by SA-4.0)

Market Cannibalization (or corporate cannibalism) refers to the negative impact a company’s new product can have on the sales of its related products. Market cannibalization comes from within the company rather than external competition. Rather than grabbing a growing share of the market, the company simply takes market share from itself, potentially leading to a decline in overall sales.

Market cannibalization can come in many different forms. The most obvious is the launch of a new product that competes with, or even replaces, a company’s existing product. If the new product fails to capture new audiences, or if the old product is discontinued prematurely, the company can potentially lose market share. However, some companies, such as Apple, intentionally take this risk, launching updated products constantly with the hopes of attracting new customers in the process.

Market cannibalization can also occur through opening too many store locations in the same area. While this strategy may put competitor’s stores out of business, it can also force a company’s stores to compete with each other. Another common type of market cannibalization can occur when a retail company opens an online store. The online store takes market share from the physical stores, potentially leading to the physical stores shutting down, as happened with Toys “R” Us in March 2018.