When Less is More: Estimating the Effect of Product Variety on Retail Operational Performance

39 Pages Posted: 9 Jun 2017

See all articles by Kevin Sweeney

Kevin Sweeney

Sam Houston State University

Yuliang Oliver Yao

Lehigh University

Robert J. Windle

Independent

Yongrui Duan

Tong Ji University

Jiazhen Huo

Tong Ji University

Date Written: June 6, 2017

Abstract

Managing product variety has long been a concern for firms from many different industries, with less product variety typically associated with higher operational performance. However, most contemporary research on product variety has looked at its impacts on the operations and sales performance of manufacturing firms. In this research, we investigate the impact of product variety on the operational performance at a retail setting. The distinction between retailer and manufacturer is important because of the unique product assortment issues retailers face, such as selling competing brands, offering many different types of product categories, or product substitutability. Using data gathered over a 7-month period for two product categories, we develop econometric models and find that product variety has a positive effect on inventory levels, and that this impact is moderated by product category substitutability. We also find that product variety increases product availability in product categories that are more substitutable, with a 1% increase in product variety leading to 0.67% fewer stockouts in some product categories. Our findings suggest both a positive and negative impact of product variety on operational performance.

Keywords: Product Variety, Inventory Management, Retail

Suggested Citation

Sweeney, Kevin and Yao, Yuliang and Windle, Robert J. and Duan, Yongrui and Huo, Jiazhen, When Less is More: Estimating the Effect of Product Variety on Retail Operational Performance (June 6, 2017). Available at SSRN: https://ssrn.com/abstract=2982022 or http://dx.doi.org/10.2139/ssrn.2982022

Kevin Sweeney (Contact Author)

Sam Houston State University ( email )

United States

Yuliang Yao

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States

Robert J. Windle

Independent ( email )

Yongrui Duan

Tong Ji University ( email )

1239 Siping Road
Shanghai, 200092
China

Jiazhen Huo

Tong Ji University ( email )

1239 Siping Road
Shanghai, 200092
China

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