Improving Store Liquidation

Nathan  Craig; Ananth   Raman

Article | Manufacturing & Service Operations Management | Winter 2016

Improving Store Liquidation

by Nathan Craig and Ananth Raman

Abstract

This paper introduces methods for increasing the efficiency of retail store liquidation, which we define as the time-constrained divestment of retail outlets through an in-store sale of inventory. The retail industry depends extensively on liquidation, not only as a means for investors to recover capital from failed ventures, but also to allow managers of going concerns to divest stores in efforts to enhance performance and to change strategy. The operations literature has examined product liquidation, but retail store liquidation differs significantly. This paper augments the literature by introducing techniques for improving operating decisions during retail store liquidations and by demonstrating the performance of these methods in the field.

Keywords: Organizational Change and Adaptation; Operations; Investment; Retail Industry;

Format: Print

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Craig, Nathan, and Ananth Raman. "Improving Store Liquidation." Manufacturing & Service Operations Management 18, no. 1 (Winter 2016): 89–103.

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To set inventory service levels, suppliers must understand how changes in inventory service level affect demand. We build on prior research, which uses analytical models and laboratory experiments to study the impact of a supplier’s service level on demand from retailers, by testing this relationship in the field. We analyze a field experiment at the supplier Hugo Boss to determine how the supplier’s inventory service level affects demand from its retailer customers. We find increases in historical fill rate to be associated with statistically significant and managerially substantial increases in current retailer orders (i.e., demand, not just sales). Specifically, a one percentage point increase in fill rate, measured over the prior year, is associated with a statistically significant 11% increase in current retailer demand, controlling for other factors that might affect retailer demand. We explore the drivers of this demand increase, including changes in retailer assortment and order frequency. We discuss features of a retail buyer’s decision context identified through our field work that may explain the magnitude of the relationship we observe.

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Improving Store Liquidation

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