Research Summary




The overarching goal of my research is to produce works that are influential and informative to both academics and practitioners in the field of operations management. To accomplish this, I collaborate with industry partners who provide knowledge about their field, data from their operations, and opportunities to test new ideas and methods. This focus dates back to my graduate work in operations research at Ohio State University, where I worked with managers and analysts at American Electric Power to formulate and solve a mixed-integer program for selecting virtual contracts to hedge operational risk when selling electricity on a power market. During the course of my doctoral studies, I developed a focus on the retail industry and, in particular, on increasing the efficiency of retail store liquidation, which is the time-constrained divestment of a set of retail stores. My collaborators and I define increased efficiency as generating more funds from a given set of inventory, stores, and sale days. Retail store liquidation, which is a novel problem not treated by extant literature on retailing seasonal and perishable goods, is vital to the retail industry: it allows going concerns to improve their performance through the divestment of weak stores, and it frees capital for the promotion of new concepts and firms in retailing. To investigate retail store liquidation, I collaborated with managers at Gordon Brothers Group, the largest retail asset disposition firm in the world, over the past two years. Going concerns use retail chain liquidations for a number of reasons, including freeing capital to implement strategic changes and removing poorly performing stores or chains from their portfolios. For example, this year, Best Buy is closing 50 big-box stores to fund a change of strategy: the retailer now plans to introduce small-format stores geared toward selling mobile devices. Home Depot liquidated its flagging chain of EXPO stores in 2009. More efficient liquidation increases the power of this tool for managers. Bankruptcy and liquidation are common in retailing---Capital IQ records 2,013 retailer bankruptcy announcements over the decade beginning in 2000---and struggling and failed retailers liquidate billions of dollars of inventory each year. The total pre-bankruptcy petition assets, recorded by Capital IQ, of just four major retailers that were liquidated since January 2000 is roughly $10B: Montgomery Ward ($3.4B), Circuit City ($3.4B), Linens `n Things ($1.7B), and Heilig-Meyers ($1.5B). Regardless of whether a firm is liquidated, retail chain liquidation is a key determinant of the outcome of the bankruptcy process because it acts as the debtholders' backstop. Efficient liquidation increases the amount of capital available to stakeholders---including employees, suppliers, and investors---and thus affects not only bankrupt firms but also, e.g., retail finance through \emph{ex ante} contracts. Moreover, efficient liquidation frees capital to be used for innovation in the retail sector and elsewhere. My job market paper, "Applying Management Science to Retail Store Liquidation," (with Ananth Raman) introduces the retail store liquidation problem to the operations management literature. This problem, which we formulate as a dynamic program, differs structurally from those explicated by prior authors through the introduction of store variable operating costs that may be large relative to store revenues. Managers executing a retail store liquidation need not only to set prices and inventory levels but also to consider the timing of store closings. In this paper, we also provide methods for improving the decisions made during a retail store liquidation. These techniques, which include a relaxation of the dynamic program and a demand forecasting model, were developed and tested during the liquidation of over $2B of inventory. Further, we discuss insights and results gleaned from applying the methods during recent major retail store liquidations, including sales conducted by Borders, Filene's Basement, and Home Depot. We argue that our techniques significantly improve the outcome of retail store liquidations, increasing revenues by as much as 5 to 10% while decreasing costs by a similar amount. I believe that research on retail store liquidation has only just begun. There are a number of important questions that follow directly from our first paper. For example, what are the drivers of a retail store's demand during a liquidation? How should a retail asset disposition firm decide between liquidating inventory in a retailer's stores or via the internet? When is it worthwhile to price at the item level rather than at the category level, which is the current practice? In addition, the context of retail store liquidation serves as an ideal laboratory for testing fundamental questions in seasonal and perishable goods retailing. Significant variance in inventory levels will allow us to study the billboard and scarcity effects while rapid markdown cadences abet the examination of strategic customer behavior. I am also currently pursuing research on the intersection between retail store liquidation and retail finance. Along with C. Fritz Foley and Ananth Raman, I am exploring the interaction between retail inventory liquidation value, asset-based lending, and inventory management practices using a unique database containing detailed information about the outcomes of over 100 liquidations in the United States and Europe. These liquidations involve 70 retailers and $8B of inventory. Relatively little is known about the relationship between inventory investment decisions and liquidation values despite the prominence of liquidation value in theory (e.g., the optimal policies prescribed in inventory models often depend on salvage value, which may be construed as liquidation value in many situations, and the textbook theory of capital structure holds that firms select an optimal amount of debt by weighing the tax benefits of debt against the costs of financial distress, which are a function of asset liquidation value). Inventory-based lending, or collateralized lending on retail inventories, is a relatively new form of finance that provides hundreds of billions of dollars of capital to retailers including Whole Foods, Barnes and Noble, and Dick's Sporting Goods. By treating inventory as loan security, inventory-based lending makes the link between inventory management decisions and liquidation values even more explicit. As these works demonstrate, the aim of my research is to augment the academic literature while developing critical insights and useful methods for practitioners. In the long term, I will continue to be guided by this principle as I study other questions and problems related to retail store liquidation, inventory finance, and retail operations management.