Speaker: Fredrik Eng Larsson, Stokholm University

Title: The introduction of online operations to brick-and-mortar grocery stores and its impact on shrink

Abstract:
Omnichannel grocery retailers often use stores to fulfill online orders for a variety of reasons (e.g., faster deliveries, labor availability).  This strategy influences inventory management, particularly the shrink ratio (defined as the ratio of loss to sales) in two opposing ways.  Fulfilling online orders has the potential to increase the sales-to-stock ratio thereby improving turnover and, consequently, the shrink ratio (i.e., food waste).  However, the last-expired-first-out picking policies used by store employees to serve online customers may generate higher levels of shrink in the store.  Using granular data from a grocery retailer, we study the impact that introducing online fulfillment to existing stores has on shrink.  We rely on a staggered difference-in-difference approach to account for the way in which online fulfillment was adopted throughout the chain.  We find the shrink ratio to increase, on average, with the introduction of online fulfillment at brick-and-mortar stores.  However, substantial heterogeneity in this increase exists across product categories and stores.  We exploit this heterogeneity to understand more about the dynamics of online order fulfillment and to caution retailers about several unforeseen performance impacts of online operations. 

Website: https://www.su.se/profiles/fengl-1.218674

Host: Christian Larsen

Organisers: Surabhi Verma and Hartanto Wong