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The Effect of Multichannel and Omnichannel Retailing on Physical Stores

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  • Fei Gao

    (Kelley School of Business, Indiana University, Bloomington, Indiana 47405)

  • Vishal V. Agrawal

    (McDonough School of Business, Georgetown University, Washington, District of Columbia 20057)

  • Shiliang Cui

    (McDonough School of Business, Georgetown University, Washington, District of Columbia 20057)

Abstract

Most retailers today sell products through an online channel in addition to traditional physical stores. We investigate how such a multichannel or omnichannel retailer should decide the number and size of physical stores. We show that a higher return rate for online purchases can incentivize the retailer to have fewer physical stores that are larger in size. As online shopping becomes more convenient, a retailer may prefer to have more physical stores that are smaller in size. We also study the effect of three popular omnichannel strategies that involve changes of the physical stores’ functions: (i) showrooms only display products for customers to inspect before they purchase online, removing fulfillment from physical stores; (ii) return flexibility expands the functionality of physical stores by allowing customers to return online orders at them; and (iii) fulfillment flexibility expands functionality by allowing customers to pick up products purchased online at physical stores. We show that when the physical stores are given fewer (more) functions, as with the showroom (return or fulfillment flexibility) strategy, the omnichannel retailer may find it optimal to increase (reduce) the number and/or size of the physical stores.

Suggested Citation

  • Fei Gao & Vishal V. Agrawal & Shiliang Cui, 2022. "The Effect of Multichannel and Omnichannel Retailing on Physical Stores," Management Science, INFORMS, vol. 68(2), pages 809-826, February.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:2:p:809-826
    DOI: 10.1287/mnsc.2021.3968
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    References listed on IDEAS

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    3. Chen, Yajing & Wu, Zhimin & Wang, Yunlong, 2024. "Omnichannel product selection and shelf space planning optimization," Omega, Elsevier, vol. 127(C).
    4. Joshi, Raunak & Basu, Sumanta & Jonnalagedda, Sreelata & Avittathur, Balram, 2023. "Multichannel retailer’s channel choice and product pricing: Influence of investment in fit-disclosing technology by competing retailers," International Journal of Production Economics, Elsevier, vol. 262(C).
    5. Goedhart, Joost & Haijema, René & Akkerman, Renzo & de Leeuw, Sander, 2023. "Replenishment and fulfilment decisions for stores in an omni-channel retail network," European Journal of Operational Research, Elsevier, vol. 311(3), pages 1009-1022.
    6. Lei, Bozhuang & Li, Gang & Cheng, T.C.E., 2024. "Friend or foe? Examining local service sharing between offline stores and e-tailers," Omega, Elsevier, vol. 123(C).

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