Value of Online-Offline Return Partnership to Offline Retailers

Abstract

Problem Definition: This paper examines whether, and if so, how much an online-offline return partnership between online retailers and third-party retailers with physical stores (or, “location partners”) generates additional value to location partners. Academic/Practical Relevance: Online shoppers often prefer to return products to stores rather than mailing them back. Many online retailers have recently started to collaborate with location partners to offer the store return option to their customers, and we quantify its economic benefit to a location partner. Methodology: We analyze proprietary datasets from Happy Returns (which provides return services for over 30 online retailers) and one of its location partners, using a panel difference-in-differences (DID) model. In our study, a treatment is the initiation of the return service at each of the location partner’s stores, and an outcome is the store and online channel performance of the location partner. We then explore the mechanisms of underlying customer behavior that drive these outcomes. Results: We find that the partnership increases the number of unique customers, sales volume, and revenue in both store and online channels. We identify two drivers for this improved performance: (1) the location partner acquires new customers in both store and online channels, and (2) existing customers change their shopping patterns only in the store channel after using the return service; in particular, they visit stores more often, purchase more items, and generate higher revenue after their first return service. Managerial Implications: We provide the first, direct empirical evidence of value to location partners from a return partnership, and as these partnerships become more prevalent, our findings have important managerial implications for location partners and online retailers alike.