M-Commerce, Sales Concentration, and Inventory Management

Jain, N and Tan, T (2022) M-Commerce, Sales Concentration, and Inventory Management. Manufacturing and Service Operations Management, 24 (4). pp. 2256-2273. ISSN 1523-4614

Abstract

Problem definition: The mobile commerce (m-commerce) channel is poised to be the future of online markets. It offers search features distinct from conventional personal computer (PC)-based e-commerce channels. Its easy accessibility extends the time available for customers to search, although its shopping environment constraints (e.g., small screen size, single-tab browsing) may inflate search costs. Collectively, these competing features cause ambiguity about the mobile channel’s true effect on sales concentration—a key criterion in managing retail operations. The focus of this study is to understand the net impact of the mobile channel on driving sales concentration. Academic/practical relevance: Our study extends the empirical literature focusing on online retailers’ channel strategies and their implication on operations practice. It examines differences in primary online channels—mobile and PC—on shaping sales concentration across products and the cost of ignoring such a difference on inventory management, a core decision for operations managers. Methodology: We collaborate with a large online apparel retailer to access customer-level transactional data. We identify the mobile channel’s effect on sales concentration using a difference-in-differences strategy that leverages a quasi-experiment stemming from the retailer’s decision to discontinue its PC sales channel. Results: We find that the mobile channel increases the share of popular products by 6.4% compared with the PC channel. We also identify scenarios where ignoring this significant sales concentration difference will yield suboptimal inventory stocking by 4.2%–12.9%. Managerial implications: Our paper highlights that the mobile and PC channels have different sales concentrations because of different search features. Ignoring this difference affects inventory decisions, such as safety and cycle inventory levels. Therefore, it is imperative for managers to revise their status quo strategies, such as on inventory procurement, assortment planning, and product display, when integrating m-commerce with e-commerce.