Store Inventory Positioning, E-Commerce Intensity, and Retailer Profitability: Evidence From U.S. Census Microdata

Problem definition: Retailers increasingly sell both in physical stores and via e-commerce channels. In this setting, a central yet underexplored strategic decision concerns store inventory positioning (SIP)—the share of total inventory held in stores rather than in upstream facilities—and its effect on firm performance. While classical inventory theory highlights a cost–responsiveness tradeoff associated with SIP, little empirical evidence exists on how SIP affects retailer profitability in a multi-channel context. This study investigates how SIP relates to operating margins and how this relationship varies with retailers’ e-commerce intensity (ECI), the share of total sales facilitated via online channels. We also explore whether these effects are contingent on factors like retailer size and type. Methodology/results: We use restricted-access firm-level microdata from the U.S. Census Bureau’s Annual Retail Trade Survey covering approximately 42,500 U.S. retailers and 190,000 firm-year observations from 2006 to 2019. The data uniquely allows us to observe both the physical location of inventory and e-commerce sales shares. Using two-way fixed effects models complemented by robustness analyses, we find that higher SIP is, on average, negatively associated with operating margins. However, this negative relationship is significantly attenuated as ECI increases. Importantly, the moderating effect of ECI is economically large and statistically significant only for large retailers and is strongest for specialty-oriented retailers relative to convenience-oriented ones. Managerial implications: Our findings show that SIP is not universally beneficial; its profitability implications depend critically on a retailer’s channel mix, scale, and type. Accordingly, managers should align inventory placement decisions with their ECI, size, and type. For large retailers with substantial online sales, greater store-based inventory can enhance operating margins, whereas smaller or convenience-oriented retailers may be better served by more centralized inventory holdings.