An off-price retailer with two ordering opportunities and demand updating

Moutaz Khouja and Jing Zhou

International Journal of Production Economics, 2017, vol. 188, issue C, 128-138

Abstract: We develop a model of an off-price retailer who has two procurement opportunities for next season. The first opportunity occurs after the end of the current season when the off-price retailer buys excess inventory from retailers and manufacturers and store them until next season. The second opportunity occurs at the beginning of the next selling season when retailers and manufacturers sell anticipated excess inventory, production overruns and irregular units. At the time of the first ordering opportunity the price for the second ordering opportunity is a random variable whose parameters depend on future prevailing economic conditions. Sometime between the first and second ordering opportunities, the off-price retailer observes a market signal which updates her demand forecast. We find that for non-trendy products, the first ordering opportunity provides the off-price retailer with a way to obtain some inventory at a low cost to hedge against the possibility of high demand with higher prices in the next season. We also find that the off-price retailer is less likely to take advantage of the first ordering opportunity in the case of trendy products which have a large premium for newness. Under limited supplies the off-price retailer is more likely to use the first ordering opportunity even when there is a premium for the newness of the second order.

Keywords: Off-price retailers; Supply chain management; Newsvendor model; Demand updating (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:188:y:2017:i:c:p:128-138

DOI: 10.1016/j.ijpe.2017.03.023

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