An Empirical Analysis of Intra‐Firm Product Substitutability in Fashion Retailing

Elçin Ergin, Mehmet Gümüş and Nathan Yang

Production and Operations Management, 2022, vol. 31, issue 2, 607-621

Abstract: This study offers an empirical investigation of inventory and sales dynamics in a large‐scale retail network setting. We infer the impact of product shortages on sales in neighboring outlets using unique data from a large fast fashion retailing chain and an Instrumented Difference‐in‐Differences (DDIV) methodology. Our analysis reveals that sales for a particular item at a focal store increases when that same item experiences stock‐outs in neighboring stores. Our empirical findings suggest that there is substitutability across stores, and that this substitutability is the strongest in the period when the stock‐out is observed for the first time, and decreases as time passes following the stock‐out. In order to assess the implications of considering the impact of stock‐outs on inventory allocation, we develop an optimization model that is calibrated using parameters estimated via our earlier DDIV analysis. The simulation analysis confirms that revenues markedly improve on average by 6% under low demand variance and by 14% under high demand variance when neighboring stock‐out information is taken into account for sales forecasting while optimizing initial inventory allocations. Finally, we conduct sensitivity analysis to evaluate how these potential revenue improvements vary with turnover, product price, and inventory.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/poms.13569

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:31:y:2022:i:2:p:607-621

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().