From Storefronts to Screens: An Exploration of Ship-from-Store, Customer Behavior, and SKU-Level Impacts

Abstract

In the ongoing evolution from brick-and-mortar (B&M) stores to multichannel operations, the ``Ship-from-Store" (SFS) strategy stands out as a pivotal approach for achieving seamless omnichannel integration. Through SFS, B&M stores harness their in-store inventory to swiftly cater to the online demands of proximate customers. However, despite its potential to broaden customer reach, inappropriate implementation of SFS may yield detrimental effects for retailers, such as diminished cross-selling opportunities. Leveraging empirical data from a pharmacy retailing chain, this paper embarks on an investigation into the effects of SFS on customer behavior, inventory management, and resultant profitability. The paper's data-driven insights particularly underscore the significance of SKU-level analysis in comprehending the multifaceted implications of SFS on retail operations. With empirical observations as a foundation, we construct a stylized model and find the conditions under which a B\&M retailer can benefit from SFS-namely, when in-store visit costs outweigh online waiting costs, thereby promoting a demand pooling effect and enhancing in-store fill rates. The study further reveals that reduced online waiting costs through SFS can induce market expansion or channel cannibalization, with the former proving the most profitable trajectory. In scenarios of partial channel cannibalization, profits can be augmented by astutely selecting high-margin, high cross-selling, and well-stocked items for online listing. Finally, our empirical analyses substantiate the paper's theoretical postulations and results, providing a cohesive narrative on the dynamics of SFS in modern retail.

Keywords: Ship-from-store, inventory management, omni channel operations