Omnichannel retail operations with mixed fulfillment strategies

Abstract

Many retailers are implementing omnichannel (OC) strategies including buy online, pick up in store (BOPS), buy online, ship from store (BOSS) and buy online, ship to store (STS). We study the impact of mixed fulfillment OC strategies (e.g., BOPS-STS, BOSS-BOPS-STS) on the retailer’s store operations. We build a stylized model where the retailer operates both a physical store and online channels, and faces two segments of customers: fixed-channel customers and OC-type customers. We find that both BOPS-STS and BOSS-BOPS-STS may induce customers to shift fulfillment options for time-insensitive or experience products when pickup hassle cost is low. In addition, both BOPS-STS and BOSS-BOPS-STS can expand the market for time-sensitive or experience products. We show that BOSS-BOPS-STS may increase the retailer’s optimal inventory level for time-sensitive or experience products when in-store hassle cost is high, and will decrease the optimal inventory level for time-insensitive or non-experience products when both pickup and in-store hassle costs are low. These two mixed strategies may increase or reduce the retailer’s profits, depending on whether they drive effects of option shift and market expansion and whether their fixed costs exceed certain thresholds. Finally, we find that different OC strategies interact and their effects on the retailer’s store operations and customers’ channel choices vary across product types.