Channel Integration, Sales Dispersion, and Inventory Management

Santiago Gallino (), Antonio Moreno () and Ioannis Stamatopoulos ()
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Santiago Gallino: Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755
Antonio Moreno: Managerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Ioannis Stamatopoulos: Managerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University, Evanston, Illinois 60208

Management Science, 2017, vol. 63, issue 9, 2813-2831

Abstract: 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).

Keywords: retail operations; online retail; channel integration; sales dispersion; long tail; empirical operations; inventory management; omnichannel retail (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (53)

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