Bricks Processing Returns for Clicks: Can Foes Become Friends?

The rise of e-commerce has transformed the retail industry, changing consumer habits and forcing offline retailers to find new ways to stay relevant. Meanwhile, online retailers are seeking ways to enhance the flexibility of product returns as they lack a tactile shopping experience. As such, novel buy online, return in store (BORS) agreements between competing online and offline retailers, such as Amazon and Kohl’s, are emerging. A BORS agreement allows customers who buy from the online retailer to make returns at the offline retailer’s stores. In this paper, we examine the strategic impact of the agreement on price competition and profits. Our analysis suggests that the BORS agreement can create an aggressive environment for the offline retailer, despite the additional footfall from returners. However, under certain conditions, the agreement creates an opportunity for the two retailers to carve out a section of the customer base that they can decide not to compete on. As a result of this strategic effect, the agreement can soften price competition, rendering both retailers better off when they are moderately differentiated. Interestingly, the agreement can also curb customers’ showrooming behavior. We also investigate the welfare implications of the agreement and show that it can lead to a win-win-win situation for the online retailer, offline retailer, and consumers.