Omnichannel Retail Operations With Buy Online And Pickup In Store
Many retailers have recently started to offer customers the option to buy online and pick up in store (BOPS). We study the impact of the BOPS initiative on store operations. We build a stylized model where a retailer operates both online and offline channels. Consumers strategically make channel choices. The BOPS option affects consumer choice in two ways: by providing real-time information about inventory availability and by reducing the hassle cost of shopping. We obtain three findings. First, not all products are well-suited for in-store pickup; specifically, it may not be profitable to implement BOPS on products that sell well in stores. Second, BOPS enables retailers to reach new customers, but for existing customers, the shift from online fulfillment to store fulfillment may decrease profit margins when the latter is less cost effective. Finally, in a decentralized retail system where store and online channels are managed separately, BOPS revenue can be shared across channels to alleviate incentive conflicts; it is rarely efficient to allocate all the revenue to a single channel.
omnichannel retail operations with buy online and pickup in store
Many retailers have recently started to offer customers the option to buy online and pick up in store (BOPS). We study the impact of the BOPS initiative on store operations. We build a stylized model where a retailer operates both online and offline channels. Customers strategically make channel choices. The BOPS option affects customer choice in two ways: by providing real-time information about inventory availability and by reducing the hassle cost of shopping. We obtain three findings. First, not all products are well suited for in-store pickup; specifically, it may not be profitable to implement BOPS on products that sell well in stores. Second, BOPS enables retailers to reach new customers, but for existing customers, the shift from online fulfillment to store fulfillment may decrease profit margins when the latter is less cost effective. Finally, in a decentralized retail system where store and online channels are managed separately, BOPS revenue can be shared across channels to alleviate incentive conflicts; it is rarely efficient to allocate all the revenue to a single channel.
For all the talk of digital transformation in recent years, prior to the pandemic, many retailers continued to rely heavily on physical stores. In 2019, less than a third of U.S. retailers had implemented a digital transformation strategy, and just 4% of the 500 largest retailers offered online ordering with curbside pickup.
When the Covid-19 pandemic hit, the American retail landscape transformed overnight. Major brands shuttered storefronts and dove headfirst into a variety of omnichannel experiments, including services like curbside pickup; same-day home delivery; and buy online, pick up in-store (BOPIS). By the end of last summer, the share of retailers offering curbside pickup jumped to 44%. Brands that had long avoided prioritizing ecommerce, such as Costco and TJ Maxx, scrambled to set up online stores. Walmart launched two-hour home delivery in April of 2020, and Walgreens pharmacies implemented a BOPIS option in May.
Our study offers a helpful example of the huge potential for big data to add value in retail. The transaction data we analyzed was more than just a record of what was bought or returned. It offered powerful insights into the shopping behavior of customers, with rich detail about what customers were buying, when, where, and through which channels. Many retailers still rely heavily on surveys to attempt to understand customer perceptions and intentions, but records of actual customer decisions are much more valuable than self-reported data. These records can reveal which omnichannel options customers prefer, where to open new store locations, and which products to promote on various channels in order to maximize revenue.
These findings are consistent with our earlier research, in which we found that after introducing BOPIS, retailers would experience a drop in online sales and an increase in in-store sales that added up to a net increase in overall sales. But why is this? There are a number of important factors at play.
The COVID-19 pandemic has upended the retail industry, forcing the closure of physical stores and causing uncertainty for the future of the in-store experience. These abrupt shifts have left many retailers scrambling to effectively serve customers through other channels. Digital-first and omnichannel retailers have pivoted more easily, but retailers that prioritized physical stores and face-to-face engagement over omnichannel strategies have struggled to respond.
For retailers, the starting point matters in a crisis. Organizations that can quickly reimagine their omnichannel approach to create a distinctive customer experience will recover faster from the pandemic. Analysis of the financial crisis of 2008 shows that customer experience leaders saw a shallower downturn, rebounded more rapidly, and achieved three times the total shareholder returns in the long run compared with the market average (Exhibit 1).
To adapt to new customer behaviors and preferences, retailers will need to evaluate their current omnichannel offerings and find opportunities to innovate and fill gaps. Any additions should be clearly aligned with emerging customer needs and integrated with existing channels to support a consistent experience.
Beyond managing the SafeX considerations that are currently top of mind, retailers need to dramatically reduce costs and improve operational efficiency in their stores to offset revenues that are increasingly shifting to online channels. Done properly, this effort will help companies enhance customer experience and safety while trimming operating expenses.
Over the past three years, consumers have shifted an increasing share of their purchases to e-commerce, which has led to ever-growing declines in physical store traffic. COVID-19 has accelerated this trend with apparel retailers and department stores, which are projected to see a 10 to 13 percent increase in online penetration after COVID-19. The rising volume of e-commerce transactions will force retailers to reevaluate their network of brick-and-mortar stores and how physical locations can best support the customer experience.
While physical stores are critical to the customer experience, our analysis suggests that the United States has more retail shopping capacity than other countries with sizable retail markets. Retailers should be thoughtful about which stores they choose to reopen and in which sequence.
The assessment enabled the retailer to identify the optimal location and channel mix for each market. For every store slated to be closed, the retailer was able to calculate the halo effect and recapture rate of that store in sales volume. By taking a holistic view of physical stores and their contribution to omnichannel sales, the retailer boosted sales growth by 10 to 20 percent and improved EBITDA1 1. Earnings before interest, taxes, depreciation, and amortization. margins through smart closures.
The third stream of literature studies operational decisions on BOPS where the online channel and the offline channel belong to different firms within a supply chain. Fan et al.  design revenue sharing, service subsidy, and inventory subsidy contracts among the coordinating BOPS supply chain partners given the extra revenue generated from additional sales by BOPS customers who purchase additional products at the offline outlet. Furthermore, Jiang et al.  and Li et al.  calculate optimal pricing decisions on BOPS, respectively, considering the retailer providing service and cooperative advertising based on a BOPS supply chain. The above two literature study the impact of opening BOPS without contracts.
Consider a DLSC consisting of one manufacturer with a direct channel and one retailer. In addition to the offline retail channel, the manufacturer sells only one kind of low-carbon product through his online channel directly. The retailer is allowed to buy the low-carbon product at wholesale price and only sells it in his brick-and-mortar store. The demand function in the online channel and offline channel is as follows: and .
There is price and demand competition between the manufacturer and the retailer in online and offline channels. However, in order to implement BOPS, they need to cooperate with each other. For example, the retailer needs to prepare stocks and distribute purchases in time for consumers who choose the BOPS channel to shop. Therefore, a BOPS contract needs to be signed between the manufacturer and the retailer, and BOPS transactions are guaranteed in accordance with the contract. In order to reduce conflicts between channels, manufacturers often use fixed compensation contracts to promote cooperation with retailers and improve the overall revenue of the supply chain . In this section, we design two kinds of fixed compensation contracts to implement BOPS and solve the price equilibrium under different contracts.
Proposition 5 indicates the conditions for the MW contract realizing Pareto improvement. When the values of n, m, and λ are all high, the profit of the manufacturer and the retailer can be both improved under a certain fixed compensation. Then, the two sides can successfully sign and realize the MW contract. Obviously, the values of m and λ represent the additional profit of the overall supply chain after the demand in the online channel is transferred to offline when the BOPS channel is implemented. When they are higher, this additional profit is higher, and it is easier for both sides to reach the MW contract. However, when the values of n, m, and λ are all low enough, the BOPS channel increases the conflict between channels, which results in lower total profit of the BOPS supply chain compared with the original DLSC.
To manage the rapid jump in demand during the COVID-19 pandemic, ABC Fine Wine & Spirits leaned into its partnership with Oracle to bring BOPIS, delivery, and omnichannel retail capabilities up to speed in a hurry. 041b061a72