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Prof. Hsiao-Hui Lee
Professor and Chairman
Department of Management Information Systems
National Chengchi University

ABSTRACT

When expanding from brick-and-mortar (B&M) stores to multichannel operations, “Ship-from-store” (SFS) is a powerful strategy to achieve omnichannel synergy that enables a B&M store to quickly fulfill online demands from customers lived nearby using its store inventory. Although SFS helps B&M stores gain access to more customers, it is not necessary for these stores to gain more profits, as adopting SFS may reduce cross-selling opportunities. In this paper, we build a stylized model to investigate the impact of such a SFS strategy on customer demand, store operations, and profits. We consider two types of customers: store-only customers who only shop from an offline store and omni-customers who can shop from both online and offline channels. Both types of customer demands are fulfilled by the inventory stocked in the offline store. We show that SFS implementation can have adverse impacts to a retailer, if it is not done properly. First, a B&M retailer can reach out to more customers with SFS only when the store visiting cost is sufficiently higher than the online waiting costs, resulting in a demand pooling effect and a higher in-store fill rate. Second, reducing online waiting costs can lead to one of the three cases for the retailer: market expansion, channel cannibalization (customers switching from offline to online), and market loss. The retailer can always earn higher profits from the first but not the latter two. Third, in the channel cannibalization case, the retailer can still increase its profit by listing the right products on the online channel, such as products with high margins, high online cross-selling profits, and high optimal pooling inventory. Finally, our empirical analyses that use real data from a pharmacy retailing chain in China provide supporting evidence of these theoretical implications.