When the going gets tough, do the tough go shopping?

Abstract

AbstractThis study examines the impacts of consumer confidence on stockpiling behavior and, subsequently, retail inventory management. We show how stockpiling behavior evolved during the “Great Recession” of 2008–2009 as consumer confidence waned and demonstrate the impact of this development on inventory management. Drawing on the two‐segment household inventory theory consisting of nonstockpiling and stockpiling segments, we use a panel dataset (2005–2015) to calibrate household inventory holdings. This dataset then serves as input for a retailer‐level case study. Our empirical analysis reveals significant impacts from changing stockpiling behavior. When consumer confidence is low, both stockpiling and nonstockpiling segments respond by reducing weekly consumption rates; however, the stockpiling segment also significantly lengthens the time between shopping trips, and ultimately increases the duration of inventory holdings. These changes to consumption and stockpiling add complexity to inventory planning, requiring retailers to carefully adjust inventory levels to maintain service levels.