Less or More: Managing Channel Inventory and Store Service Strategies for Omnichannel Retailing

Retailers must reevaluate store positioning when implementing omnichannel strategies. This study examines retailers’ strategic preferences toward in-store services, including Buy-Online-Pickup-in-Store (BOPS), Buy-Online-Return-in-Store (BORS), and their combined offering. A stylized model incorporating capacity constraints and strategic consumers’ purchase behavior is developed to analyze omnichannel impacts on brick-and-mortar operations from an inventory perspective. Firstly, profit-maximizing retailers benefit from reducing online channel inventory when handling product returns. Under high online return rates or stringent capacity constraints, retailers prefer maintaining physical-only channels to mitigate returns and capture cross-selling opportunities. Secondly, offering BOPS services remains a strategic advantage during periods of moderate capacity utilization. When the online consumer market expands, spillover effects increase, return rates decrease, and capacity constraints ease, it becomes feasible to consider jointly providing BORS services. Finally, BORS may migrate offline shoppers online, making it unsuitable for high-return-rate products. For omnichannel retailers, this study offers valuable insights into implementing omnichannel strategies under capacity constraints, empowering practitioners to make more informed decisions and optimize operational tactics.