How does ship-to-store strategy affect omni-channel retailer’s sales and returns?
There is a recent trend among retailers who operate both online and bricks-and-mortar stores to integrate these two channels by allowing customers to shop online but pick up their items at a nearby local store. Customers usually enjoy the benefits of free shipping and faster delivery. With proper adjustments to their logistics network and inventory systems, retailers can deliver these benefits at a reasonable additional cost. Officially, this omni-channel practice is often labeled as the “ship-to-store” (STS) strategy. While its value proposition seems obvious on the surface, there is a lack of systematic understanding of how exactly STS could improve sales and/or reduce returns. Moreover, is the retailer better off in both channels or is it rather one channel compensating the other? A recent research published in the Journal of Operations Management by Prof. Akturk from Clemson University and Prof. Ketzenberg and Prof. Heim from Texas A&M University sets out to tackle these questions.
In principle, STS might generate three demand effects. First, it could convince a specific group of customers who would otherwise not purchase – those that are accustomed to shop online yet find the retailer’s shipping too slow or the free shipping threshold hard to qualify. Second, STS might also allure the retailer’s existing online customers to check out the local store. Some of these customers might later prefer to shop directly from the store. Third, customers using the STS service mean additional store traffic to the retailer, presenting a cross-selling opportunity. With the engagement of salesforce, some of these supposedly simply pick-up trips might turn into shopping events. The first and the third effects stimulate online and bricks-and-mortar store sales respectively, while the second shifts some online demand offline. Thus, there is not a straightforward conclusion for STS’s impact on sales. The authors collect data from a large national jewelry chain, which rolled out the STS strategy during their study period. Their analysis reveals that the store sales increases while the online sales decrease. In addition, the former more than compensates the latter. Apart from channel shifting, an unexpected consumer behavior also contributes the decrease of online sales. While initially intended to use STS, some customers eventually gave up the waiting and head straight to the local store. In other words, the expected online sales stimulating effect is in fact being exerted on the BM channel. In terms of returns, the authors find that online return rate stays intact after the STS rollout, whereas the BM return rate reduces significantly. The latter could be explained by the fact that a fraction of the BM shoppers have already done a good amount of research online, knowing better about what they want and thus return less. Further empirical details from this study can be found below.
Akturk, M. Serkan, Michael Ketzenberg, and Gregory R. Heim. “Assessing impacts of introducing ship-to-store service on sales and returns in omnichannel retailing: A data analytics study.” Journal of Operations Management 61 (2018): 15-45.
This recurring series provides plain-English summaries of leading academic research in the area of consumer returns. It is co-produced by Mark Ferguson (Univ. of South Carolina), Michael Galbreth (Univ. of Tennessee), and Guangzhi Shang (Florida State Univ.).