Santiago Gallino

Integration of Online and Offline Channels in Retail: The Impact of Sharing Reliable Inventory Availability Information

Using a proprietary data set, we analyze the impact of the implementation of a “buy-online, pick-up-in-store” BOPS project. The implementation of this project is associated with a reduction in online sales and an increase in store sales and traffic. These results can be explained by two simultaneous phenomena: 1 additional store sales from customers who use the BOPS functionality and buy additional products in the stores cross-selling effect and 2 the shift of some customers from the online to the brick-and-mortar channel and the conversion of noncustomers into store customers channel-shift effect. We explain these channel-shift patterns as an increase in “research online, purchase offline” behavior enabled by BOPS implementation, and we validate this explanation with evidence from the change of cart abandonment and conversion rates of the brick-and-mortar and online channels. We interpret these results in light of recent operations management literature that analyzes the impact of sharing inventory availability information. Our analysis illustrates the limitations of drawing conclusions about complex interventions using single-channel data. This paper was accepted by Alok Gupta, special issue on business analytics.

Severe Weather and Automobile Assembly Productivity

It is apparent that severe weather should hamper the productivity of work that occurs outside. But what is the effect of extreme rain, snow, heat and wind on work that occurs indoors, such as the production of automobiles? Using weekly production data from 64 automobile plants in the United States over a ten-year period, we find that adverse weather conditions lead to a significant reduction in production. For example, a week with six or more days of heat exceeding 90F reduces production in that week by 8% on average. The location impacted the least by weather (Princeton, IN) loses on average 0.5% of its production due to severe weather and the location with the most adverse weather (Montgomery, AL) suffers a production loss of 3.0%. Across our sample of plants, severe weather reduces production on average by 1.5%. While it is possible that plants are able to recover these losses at some later date, we do not find evidence that recovery occurs in the week after the event. Furthermore, even if recovery does occur at some point, at the very least, these shocks are costly as they increase the volatility of production. Our findings are useful both for assessing the potential productivity shock associated with inclement weather as well as guiding managers on where to locate a new production facility - in addition to the traditional factors considered in plant location (e.g., labor costs, local regulations, proximity to customers, access to suppliers), we add the prevalence of bad weather. These results can be expected to become more relevant as climate change may increase the severity and frequency of severe weather.

Channel Integration, Sales Dispersion, and Inventory Management

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 p...

Offline Showrooms in Omnichannel Retail: Demand and Operational Benefits

Omnichannel environments where customers shop online and offline at the same retailer are ubiquitous, and are deployed by online-first and traditional retailers alike. We focus on the relatively understudied domain of online-first retailers and the engagement of a key omnichannel tactic; specifically, introduction of showrooms physical locations where customers can view and try products in combination with online fulfillment that uses centralized inventory management. We ask whether, and if so, how, showrooms benefit the two most basic retail objectives: demand generation and operational efficiency. Using quasi-experimental data on showroom openings by WarbyParker.com , the leading and iconic online-first eyewear retailer, we find that showrooms: 1 increase demand overall and in the online channel as well; 2 generate operational spillovers to the other channels by attracting customers who, on average, have a higher cost-to-serve; 3 improve overall operational efficiency by increasing conversion in a sampling channel and by decreasing returns; and 4 amplify these demand and operational benefits in dealing with customers who have the most acute need for the firms products. Moreover, the effects we document strengthen with time as showrooms contribute not only to brand awareness but also to what we term channel awareness as well. We conclude by elaborating the underlying customer dynamics driving our findings and by offering implications for how online-first retailers might deploy omnichannel tactics. This paper was accepted by Vishal Gaur, operations management.

Offline Showrooms and Customer Migration in Omni-Channel Retail

Omni-channel environments where customers can shop online and offline at the same retailer are increasingly ubiquitous. Furthermore, the presence of both channels has important implications for customer demand and operational issues such as product returns. We propose that, given the opportunity, customers self-select into channels based on their need for visceral product information, i.e., the need to touch, feel, and sample physical products before purchasing. From this core idea, we develop a simple model of channel matching; it predicts that customers with a higher need for information prefer physical access to all products and that the introduction of an offline inventory display channel where none previously existed results in a more efficient match between customers and channels. Using data on display showroom introductions by WarbyParker.com, a leading US eyewear retailer, we find that: (1) the introduction of an offline channel increases demand overall and through the online channel as well, and (2) customers who migrate offline are those with the highest cost-to-serve both online and through other mechanisms such as product sampling. The second finding is evidenced by a decline in product returns through the online channel, and through a higher rate of conversion from sampling, and a reduction in repeated sampling by individual customers. The economic impact of more efficient matching made possible by the introduction of offline inventory display showrooms, is substantial.

The Value of Fit Information in Online Retail: Evidence from a Randomized Field Experiment

Online channels generate frictions when selling products with nondigital attributes, such as apparel. Customers may be reluctant to purchase products they have not been able to try on and those customers who do purchase may return products when they do not fit as expected. Virtual fitting-room technologies provide information about how a product fits a particular customer and promise to mitigate some of the frictions the information gap generates in the retailers’ supply chains. By implementing a series of randomized field experiments, we study the value of virtual fit information in online retail. In our experiments, customers are randomly assigned to a treatment condition where virtual fit information is available or to a control condition where virtual fit information is not available. Our results show that offering virtual fit information increases conversion rates and order value, and reduces fulfillment costs arising from returns and home try-on behavior, that is, customers ordering multiple sizes o...

The Value of Rapid Delivery in Online Retailing

For online retailers who sell physical goods, every transaction has two main components: the physical product and the services by which the retailer facilitates the transaction. Delivery speed is arguably the most important service component for online retailers, and for this reason, many retailers are taking steps to improve delivery speed. Despite this emphasis on delivery speed, we are aware of no empirical studies that demonstrate the economic value of faster delivery for an online retailer. We use a quasi-natural experiment -- the opening of a new online distribution center (DC), which shortened the delivery time for a group of western U.S. customers of a leading U.S. apparel retailer -- to estimate the impact of faster delivery on revenue. We show that revenue from the impacted customers increased approximately 4 percent on average after the new DC opened, with the revenue increase varying inversely with distance from the new DC. Our analysis shows that the revenue increase mainly comes from customers placing orders more frequently and buying more expensive items after the new DC opened. Our results show that the second DC added to profit because the margin on additional sales plus a reduction in shipping costs for western customers exceeded the fixed cost of having a second DC.

Setting Retail Staffing Levels: A Methodology Validated with Implementation

Problem definition: How should retail staffing levels be set? While cost of labor is well understood, the revenue implications of having the right staffing level are hard to estimate. Moreover, the...