Early sale of seasonal inventory in the newsvendor problem

Off-price retailers buy excess inventory from manufacturers and retailers and offer it at discounts to consumers. Off-price retailers want a larger assortment of trendy products, which provides retailers with a way to sell excess inventory. We analyze a supply chain of a manufacturer who sells a product to a retailer. Upon realizing demand, the retailer can sell excess inventory to the off-price retailer. The retailer and off-price retailer have their exclusive consumer segments and share a dual segment. We find that adding the off-price retailer increases the manufacturer’s optimal expected profit. Interestingly, selling inventory to the off-price retailer may decrease or increase the retailer’s optimal expected profit. The retailer’s optimal expected profit increases when the off-price retailer has a large exclusive consumer segment. Also, centralization in a supply chain with an off-price retailer leads to larger increase in the optimal order quantity and expected profit compared with centralization in a supply chain without an off-price retailer. The off-price retailer can be worse-off by having a large consumer segment shared with the retailer. Finally, the effect of the off-price retailer consumer segment demand being a random variable has only a small effect on the order quantity, the wholesale price, and profits.