IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v70y2024i3p1855-1874.html
   My bibliography  Save this article

Where to Cut the Long Tail? The Value of Carrying Inventory in Online Retail

Author

Listed:
  • Christoph Baldauf

    (Stockholm Business School, Stockholm University, 114 19 Stockholm, Sweden)

  • Fredrik Eng-Larsson

    (Stockholm Business School, Stockholm University, 114 19 Stockholm, Sweden)

  • Olov Isaksson

    (Stockholm Business School, Stockholm University, 114 19 Stockholm, Sweden)

Abstract

One advantage of online retail is that a large number of products can be displayed at low cost. However, online retailers must decide which of these products to carry in inventory (stock items) and which to order from suppliers when a customer places an order (nonstock items). In this paper, we empirically investigate how carrying a product in inventory affects its online sales. We use data from a European furniture and interior design retailer consisting of daily sales transactions and inventory data covering 18 months. We use a quasi-natural experiment—random transitions of products in and out of inventory at the retailer’s central warehouse—to estimate the causal effect of carrying inventory on sales. Our results show a strong and statistically significant increase in sales of, on average, 65% associated with having the product available in stock. More interestingly, this effect differs between products and is moderated by the price of the product: sales of more expensive products are less sensitive to the product being in stock. We use these results to draw insights on which types of items to carry in inventory.

Suggested Citation

  • Christoph Baldauf & Fredrik Eng-Larsson & Olov Isaksson, 2024. "Where to Cut the Long Tail? The Value of Carrying Inventory in Online Retail," Management Science, INFORMS, vol. 70(3), pages 1855-1874, March.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:3:p:1855-1874
    DOI: 10.1287/mnsc.2023.4777
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2023.4777
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2023.4777?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:70:y:2024:i:3:p:1855-1874. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.