Trade-offs between operational performance and sales in a retail environment: The simultaneous impact of product variety on inventory levels, product availability, and sales

Abstract

Larger product assortments have been found to have both positive and negative impacts on firms that offer them. More product variety allows firms to increase sales by either selling to a larger customer base or by encouraging current customers to purchase more frequently and in greater quantities. However, more product variety is also associated with lower operational performance. In this research, we investigate the impact of product variety on firm performance in a retail setting. Using data gathered from a large retailer over a 32-week period for 12 product categories, we develop a multiple stage regression model and find that the effects of product variety on inventory levels, stockout rates and sales differ across more hedonic and more utilitarian product categories. Furthermore, we find that the product variety decision itself is moderated by the hedonic or utilitarian nature of the product category. Implications of the findings for theory and retail management are discussed.