We study the effects of the introduction of cross-channel functionalities on the overall sales dispersion of retailers and the implications of these effects for inventory management. To do that, we ...analyze data from a leading U.S. retailer who introduced a “ship-to-store” (STS) functionality that allows customers to ship products to their local store free of charge when those products are not available in their local store. Based on the fact that stores prioritize carrying products for which local demand is high, we test the hypothesis that introducing the STS functionality increased the retailer’s overall sales dispersion. We find that, on average, the contribution of the 90% lowest-selling products to total sales increased by 0.75 percentage points, increasing sales dispersion. Calibrating conventional inventory-ordering models, we show that to respond optimally to the observed increase in dispersion, the retailer would need to increase its cycle and safety inventories by approximately 2.7%. Our paper points out the effect of an increasingly important retail phenomenon (channel integration) on a key factor for inventory management (sales dispersion).
This paper was accepted by Vishal Gaur, operations management
.
In recent years, online retailers (also called e-tailers) have started allowing manufacturers direct access to their customers while charging a fee for providing this access, a format commonly ...referred to as agency selling. In this paper, we use a stylized theoretical model to answer a key question that e-tailers are facing: When should they use an agency selling format instead of using the more conventional reselling format? We find that agency selling is more efficient than reselling and leads to lower retail prices; however, the e-tailers end up giving control over retail prices to the manufacturer. Therefore, the reaction by the manufacturer, who makes electronic channel pricing decisions based on their impact on demand in the traditional channel (brick-and-mortar retailing), is an important factor for e-tailers to consider. We find that when sales in the electronic channel lead to a negative effect on demand in the traditional channel, e-tailers prefer agency selling, whereas when sales in the electronic channel lead to substantial stimulation of demand in the traditional channel, e-tailers prefer reselling. This preference is mediated by competition between e-tailers—as competition between them increases, e-tailers prefer to use agency selling. We also find that when e-tailers benefit from positive externalities from the sales of the focal product (such as additional profits from sales of associated products), retail prices may be lower under reselling than under agency selling, and the e-tailers prefer reselling under some conditions for which they would prefer agency selling without the positive externalities.
This paper was accepted by Chris Forman, information systems.
Many retailers have recently started to offer customers the option to buy online and pick up in store (BOPS). We study the impact of the BOPS initiative on store operations. We build a stylized model ...where a retailer operates both online and offline channels. Customers strategically make channel choices. The BOPS option affects customer choice in two ways: by providing real-time information about inventory availability and by reducing the hassle cost of shopping. We obtain three findings. First, not all products are well suited for in-store pickup; specifically, it may not be profitable to implement BOPS on products that sell well in stores. Second, BOPS enables retailers to reach new customers, but for existing customers, the shift from online fulfillment to store fulfillment may decrease profit margins when the latter is less cost effective. Finally, in a decentralized retail system where store and online channels are managed separately, BOPS revenue can be shared across channels to alleviate incentive conflicts; it is rarely efficient to allocate all the revenue to a single channel.
This paper was accepted by Vishal Gaur, operations management
.
Showrooming, the phenomenon of consumers visiting a brick-and-mortar (B&M) store to learn about products but then buying online to obtain lower prices, is attracting increased attention both in ...business practice and in academic literature. It is considered a major threat to the B&M retailers, and determining "how to fight it" seems to be the only consideration. However, the manufacturer's need for retail informational services has always been one of the essential reasons for retailers to exist and is a means for retailers to achieve profitability. The popular arguments about the threat of showrooming ignore the strategic role of the manufacturer in the distribution channel. This article analytically shows that when the manufacturer's decisions are considered (i.e., when the manufacturer-retailer contract is endogenous), consumers' ability to engage in showrooming may lead to increased, rather than decreased, profitability for B&M retailer(s). Thus, retail efforts to restrict showrooming behavior may be misguided. This result holds even if the manufacturer is restricted to wholesale-only contracts and is not allowed to price discriminate between channels.
The Internet has increased the flexibility of retailers, allowing them to operate an online arm in addition to their physical stores. The online channel offers potential benefits in selling to ...customer segments that value the convenience of online shopping, but it also raises new challenges. These include the higher likelihood of costly product returns when customers' ability to "touch and feel" products is important in determining fit. We study competing retailers that can operate dual channels ("bricks and clicks") and examine how pricing strategies and physical store assistance levels change as a result of the additional Internet outlet. A central result we obtain is that when differentiation among competing retailers is not too high, having an online channel can actually increase investment in store assistance levels (e.g., greater shelf display, more-qualified sales staff, floor samples) and decrease profits. Consequently, when the decision to open an Internet channel is endogenized, there can exist an asymmetric equilibrium where only one retailer elects to operate an online arm but earns lower profits than its bricks-only rival. We also characterize equilibria where firms open an online channel, even though consumers only use it for research and learning purposes but buy in stores. A number of extensions are discussed, including retail settings where firms carry multiple product categories, shipping and handling costs, and the role of store assistance in impacting consumer perceived benefits.
The past 15-20 years have seen substantial and visible changes in the way US retail business is conducted. Explanations about what is happening in the retail sector have been dominated by two ...powerful and not fully consistent narratives: a prediction that retail sales will migrate online and physical retail will be virtually extinguished, and a prediction that future shoppers will almost all be heading to giant physical stores like warehouse clubs and supercenters. Although online retail will surely continue to be a force shaping the sector going forward and may yet emerge as the dominant mode of commerce in the retail sector in the United States, its time for supremacy has not yet arrived. We discuss evidence indicating that the warehouse clubs/supercenter format has had a greater effect on the shape of retail over the past 15-20 years. We begin with an overview of the retail sector as a whole, which over the long term has been shrinking as a share of total US economic activity and in terms of relative employment share. The retail sector has experienced stronger-than average productivity growth, but this has not been accompanied by commensurate wage growth. After discussing the important e-commerce and warehouse clubs/supercenters segments, we look more broadly at changes across the structure of the retail sector, including scale, concentration, dynamism, and degree of urbanization. Finally, we consider the likely future course of the retail sector.
By analyzing various alternative mixed channel structures composed of a monopoly manufacturer and online and offline outlets, we investigate how the specific channel structure and varying market ...conditions moderate the impact of Internet channel entry on the channel members and consumers. As an extension of Balasubramanian's model Balasubramanian, S. 1998. Mail versus mall: A strategic analysis of competition between direct marketers and conventional retailers.
Marketing Sci.
17
(3) 181-195, our game-theoretic model captures the fundamental difference between two different channel types and consumer heterogeneity in preference for the Internet channel use. The equilibrium solutions indicate that Internet channel entry does not always lead to lower retail prices and enhanced consumer welfare. We also find that an independent retailer might become worse off after adding its own Internet outlet under certain market conditions. We find that the impact of the Internet channel introduction substantially varies across channel structures and market environments. We explain these varied results by proposing a framework of five key strategic forces that shape the overall impact of the Internet channel introduction.
Omnichannel environments where customers shop online and offline at the same retailer are ubiquitous, and are deployed by online-first and traditional retailers alike. We focus on the relatively ...understudied domain of online-first retailers and the engagement of a key omnichannel tactic; specifically, introduction of showrooms (physical locations where customers can view and try products) in combination with online fulfillment that uses centralized inventory management. We ask whether, and if so, how, showrooms benefit the two most basic retail objectives: demand generation and operational efficiency. Using quasi-experimental data on showroom openings by
WarbyParker.com
, the leading and iconic online-first eyewear retailer, we find that showrooms: (1) increase demand overall
and
in the online channel as well; (2) generate
operational spillovers
to the
other
channels by attracting customers who, on average, have a higher cost-to-serve; (3) improve overall operational efficiency by increasing conversion in a sampling channel and by decreasing returns; and (4) amplify these demand and operational benefits in dealing with customers who have the most acute need for the firm’s products. Moreover, the effects we document strengthen with time as showrooms contribute not only to brand awareness but also to what we term
channel awareness
as well. We conclude by elaborating the underlying customer dynamics driving our findings and by offering implications for how online-first retailers might deploy omnichannel tactics.
This paper was accepted by Vishal Gaur, operations management.
Online prices are increasingly used for measurement and research applications, yet little is known about their relation to prices collected offline, where most retail transactions take place. I ...conduct the first large-scale comparison of prices simultaneously collected from the websites and physical stores of 56 large multi-channel retailers in 10 countries. I find that price levels are identical about 72 percent of the time. Price changes are not synchronized but have similar frequencies and average sizes. These results have implications for national statistical offices, researchers using online data, and anyone interested in the effect of the Internet on retail prices.
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