Do High and Low Inventory Turnover Retailers Respond Differently to Demand Shocks?

Saravanan Kesavan (), Tarun Kushwaha () and Vishal Gaur ()
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Saravanan Kesavan: Kenan-Flagler Business School, University of North Carolina, Chapel Hill, North Carolina 27599
Tarun Kushwaha: Kenan-Flagler Business School, University of North Carolina, Chapel Hill, North Carolina 27599
Vishal Gaur: Samuel Curtis Johnson Graduate School of Management, Cornell University, Ithaca, New York 14850

Manufacturing & Service Operations Management, 2016, vol. 18, issue 2, 198-215

Abstract: This paper examines the differences in the behaviors of high (HIT) and low inventory turnover (LIT) retailers in responding to demand shocks. We identify quantity and price responsiveness as two mediating mechanisms that distinguish how high and low inventory turnover retailers manage demand shocks. Using quarterly firm-level data of 183 U.S. retailers between 1985 and 2012, we find that HIT retailers are able to respond quickly by changing their purchase quantities in response to demand shocks, whereas LIT retailers primarily rely on price changes to manage demand shocks. In addition, we examine the differential implications of these mechanisms on the financial performance of HIT and LIT retailers. We find price responsiveness to be a less effective strategy, compared to quantity responsiveness, in reducing excesses and shortages of inventory. Finally, the negative financial impact of a given amount of excess and shortage of inventory is eight times more severe for LIT retailers compared to HIT retailers.

Keywords: inventory turnover; retailing; demand shock; supply chains; financial performance; econometric analyses (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:18:y:2016:i:2:p:198-215

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