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The store
Imagine a future of unparalleled convenience. A powerful retailer, The Store, can deliver anything to your door, anticipating the needs and desires you didn't even know you had. Most people are fine with that, but not Jacob and Megan Brandeis. New York writers whose livelihood is on the brink of extinction, Jacob and Megan are going undercover to dig up The Store's secrets in a book that could change the entire American way of life -- or put an end to Jacob's. After a series of unsettling discoveries, Jacob and Megan's worst fears about The Store seem like just the beginning. With nothing escaping The Store's watchful eye, harboring a secret that could get him killed, Jacob has to find a way to publish his expose -- before the truth dies with him.
Book
Offline Showrooms in Omnichannel Retail: Demand and Operational Benefits
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.
Journal Article
Fashion logistics : insights into the fashion retail supply chain
\"Looking at responsible fashion retailing and cost-effective supply chain management, Fashion Logistics examines the early growth and changes in the fashion industry, leading up to the drivers of change in today's market. The book covers international sourcing, merchandising, planning and forecasting, business models, operating strategies, and design distribution models. Along with online supplementary materials for the book in general, each chapter includes figures, tables, references, suggested readings, and mini-case studies with discussion questions\"-- Provided by publisher.
Book
Omnichannel Retail Operations with Buy-Online-and-Pick-up-in-Store
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
.
Journal Article
Channel Integration, Sales Dispersion, and Inventory Management
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
.
Journal Article
Integration of Online and Offline Channels in Retail: The Impact of Sharing Reliable Inventory Availability Information
Using a proprietary data set, we analyze the impact of the implementation of a \"buy-online, pick-up-in-store\" (BOPS) project. The implementation of this project is associated with a reduction in online sales and an increase in store sales and traffic. These results can be explained by two simultaneous phenomena: (1) additional store sales from customers who use the BOPS functionality and buy additional products in the stores (cross-selling effect) and (2) the shift of some customers from the online to the brick-and-mortar channel and the conversion of noncustomers into store customers (channel-shift effect). We explain these channel-shift patterns as an increase in \"research online, purchase offline\" behavior enabled by BOPS implementation, and we validate this explanation with evidence from the change of cart abandonment and conversion rates of the brick-and-mortar and online channels. We interpret these results in light of recent operations management literature that analyzes the impact of sharing inventory availability information. Our analysis illustrates the limitations of drawing conclusions about complex interventions using single-channel data.
This paper was accepted by Alok Gupta, special issue on business analytics
.
Journal Article
Consumer Return Policies in Omnichannel Operations
We study the pricing and return policy decisions of an omnichannel retailer serving customers who differ in how they realize their uncertain valuation for a product—by inspecting in store before purchase or by purchasing online and possibly returning misfit products. Customers may return misfit products either to stores for a full refund or online as per the firm’s return policy. We model prices to be identical across channels, allow crosschannel returns, and endogenize customers’ purchase and return decisions, capturing typical features of an omnichannel setting. Our analysis helps explain why some omnichannel firms choose full refunds, whereas others charge a fee for online returns. We find that omnichannel firms with good salvage partners for online returns (e.g., Nordstrom) as well as those with more store-based customers (e.g., Macy’s) should offer full refunds. Similarly, firms are incentivized to offer full refunds for products that customers are more likely to inspect in store (e.g., Express for footwear). In contrast, firms with a significant store network and better in-store salvage opportunities (e.g., J.C. Penney) might be better off charging a fee for online returns in order to nudge customers to return in store. Finally, an omnichannel firm should be cautious both in making the return process more convenient and in improving accessibility to its stores, because these seemingly beneficial policies, if combined with a partial-refund policy, could undermine the firm’s overall profit.
This paper was accepted by Vishal Gaur, operations management
.
Journal Article
The Long-term and Spillover Effects of Price Promotions on Retailing Platforms: Evidence from a Large Randomized Experiment on Alibaba
Dynamic pricing through price promotions has been widely used by online retailers. We study how a promotion strategy, one that offers customers a discount for products in their shopping cart, affects customer behavior in the short and long term on a retailing platform. We conduct a randomized field experiment involving more than 100 million customers and 11,000 retailers with Alibaba Group, one of the world’s largest retailing platform. We randomly assign eligible customers to either receive promotions for products in their shopping cart (treatment group) or not receive promotions (control group). In the short term, our promotion program doubles the sales of promoted products on the day of promotion. In the long term, we causally document unintended consequences of this promotion program during the month after our treatment period. On the positive side, it boosts customer engagement, increasing the daily number of products that customers view and their purchase incidence on the platform. On the negative side, it intensifies strategic customer behavior in the posttreatment period in two ways: (1) by increasing the proportion of products that customers add to their shopping cart conditional on viewing them, possibly because of their intention to get more shopping cart promotions, and (2) by decreasing the price that customers subsequently pay for a product, possibly because of their strategic search for lower prices. Importantly, these long-term effects of price promotions on consumer engagement and strategic behavior spill over to sellers who did not previously offer promotions to customers. Finally, we examine heterogeneous treatment effects across promotion, seller, and consumer characteristics. These findings have important implications for platforms and retailers.
This paper was accepted by Vishal Gaur, operations management.
Journal Article
Customer Supercharging in Experience-Centric Channels
We conjecture that for online retailers, experience-centric offline store formats do not simply expand market coverage, but rather, serve to significantly amplify future positive customer behaviors, both online and offline. We term this phenomenon “supercharging” and test our thesis using data from a digital-first men’s apparel retailer and a pioneer of the so-called zero inventory store (ZIS) format—a small-footprint, experience-centric retail location that carries no inventory for immediate fulfillment, but fulfils orders via e-commerce. Using a risk-set matching approach, we calibrate our estimates on customers who are “treated,” that is, have a ZIS experience, and matched with identical customers who shop online only. We find that after the ZIS experience, customers spend more, shop at a higher velocity, and are less likely to return items. The positive impact on returns is doubly virtuous as it is more pronounced for more tactile, higher-priced items, thus mitigating a key pain point of online retail. Furthermore, the ZIS shopping experience aids product discovery and brand attachment, causing sales to become more diffuse over a larger number of categories. Finally, we demonstrate that our results are robust to self-selection and potentially confounding effects of unobservable factors on the matched pairs of customers. Implications for retailing practice, including for legacy, offline-first retailers, are discussed.
This paper was accepted by Victor Martínez-de-Albéniz, operations management.
Journal Article
The Impact of Linear Optimization on Promotion Planning
Sales promotions are important in the fast-moving consumer goods (FMCG) industry due to the significant spending on promotions and the fact that a large proportion of FMCG products are sold on promotion. This paper considers the problem of planning sales promotions for an FMCG product in a grocery retail setting. The category manager has to solve the promotion optimization problem (POP) for each product, i.e., how to select a posted price for each period in a finite horizon so as to maximize the retailer’s profit. Through our collaboration with Oracle Retail, we developed an optimization formulation for the POP that can be used by category managers in a grocery environment. Our formulation incorporates business rules that are relevant, in practice. We propose general classes of demand functions (including multiplicative and additive), which incorporate the post-promotion dip effect, and can be estimated from sales data. In general, the POP formulation has a nonlinear objective and is NP-hard. We then propose a linear integer programming (IP) approximation of the POP. We show that the IP has an integral feasible region, and hence can be solved efficiently as a linear program (LP). We develop performance guarantees for the profit of the LP solution relative to the optimal profit. Using sales data from a grocery retailer, we first show that our demand models can be estimated with high accuracy, and then demonstrate that using the LP promotion schedule could potentially increase the profit by 3%, with a potential profit increase of 5% if some business constraints were to be relaxed.
The online appendix is available at
https://doi.org/10.1287/opre.2016.1573
Journal Article