The Effect of Multi-Channel and Omni-Channel Retailing on Physical Stores

28 Pages Posted: 31 Jul 2018

See all articles by Fei Gao

Fei Gao

Indiana University Bloomington

Shiliang Cui

Georgetown University - McDonough School of Business

Vishal Agrawal

Georgetown University - McDonough School of Business

Date Written: June 1, 2018

Abstract

Most retailers today sell products through an online channel in addition to traditional physical stores. Customers may find online shopping attractive because it helps them avoid traveling to a store, but they have to incur an online hassle cost due to the inconvenience from having to wait, delivery costs, etc. However, purchasing the product online without being able to inspect it may lead to more returns for the retailer. In contrast, visiting a physical store allows customers to inspect the product before purchasing it, but they also have to incur a travel cost. Given the complex trade-offs associated with customers' purchasing decisions, a natural question is how the online channel influences a retailer's decisions regarding the physical stores. In this paper, we study how a multi-channel or omni-channel retailer should decide the number and size of physical stores. We show that contrary to expectation, as online shopping becomes more convenient, a retailer should open more physical stores that are smaller in size. We also find that a higher product return rate for online purchases can incentivize the retailer to open fewer physical stores that are larger in size. We also study the effect of two popular omni-channel strategies, viz., showroom stores (where physical stores only display products for customers to inspect before purchasing online) and return flexibility (where customers can return their online purchases to a physical store). We show that the retailer should have more stores in the presence of such omni-channel strategies.

Keywords: retail operations, omnichannel, strategic consumer behavior, product valuation uncertainty

Suggested Citation

Gao, Fei and Cui, Shiliang and Agrawal, Vishal, The Effect of Multi-Channel and Omni-Channel Retailing on Physical Stores (June 1, 2018). Georgia Tech Scheller College of Business Research Paper No. 18-28. Available at SSRN: https://ssrn.com/abstract=3212274 or http://dx.doi.org/10.2139/ssrn.3212274

Fei Gao

Indiana University Bloomington ( email )

1309 E 10th St
Bloomington, IN 47405
United States

Shiliang Cui

Georgetown University - McDonough School of Business ( email )

Washington, DC 20057
United States

Vishal Agrawal (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street NW
Washington, DC 20057
United States

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