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Assortment optimization in omni-channel retailing

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  • Hense, Jonas
  • Hübner, Alexander

Abstract

Nowadays the majority of retail customers use multiple channels. We investigate the assortment, space and inventory problem for an omni-channel retailer operating with interconnected bricks-and-mortar stores and an online shop. For this problem it becomes essential to consider customers’ demand interactions across channels. Current literature mainly focuses on single-channel assortments and ignores cross-channel substitution. We contribute the first integrated omni-channel model that determines assortments for the online and bricks-and-mortar channel with stochastic, space-elastic and out-of-assortment and out-of-stock demand both for in-channel substitution and cross-channel substitution. A specialized heuristic is developed that is based on an iterative solution of a binary problem and demand updates. Our approach achieves near-optimal results for small instances and higher objective values as an alternative heuristic for larger instances. With the full integration of channels, omni-channel retailers can realize a profit increase that mainly depends on the magnitude of substitution rates. We further show numerically that in-channel substitution has a stronger impact on profits than cross-channel substitution when costs are equal across channels.

Suggested Citation

  • Hense, Jonas & Hübner, Alexander, 2022. "Assortment optimization in omni-channel retailing," European Journal of Operational Research, Elsevier, vol. 301(1), pages 124-140.
    • Handle: RePEc:eee:ejores:v:301:y:2022:i:1:p:124-140
    DOI: 10.1016/j.ejor.2021.09.045
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