Omnichannel retail operations with refurbished consumer returns

Abstract

Online consumers being allowed to return unsatisfied products to any store prevails in the omnichannel retailing context. Retailers increasingly implement a store return option to offer consumers a seamless shopping experience. This paper develops a newsvendor model of a retailer selling its products to consumers through both online and offline channels. Consumers can return unsatisfied products to the retailer for a full refund, and the returned items can be resold as refurbished products in the circular economy era. Utilising the game theory, the retailer’s optimal ordering and pricing decisions are obtained under the benchmark scenario and omnichannel strategy. From the analytical results and numerical analysis, we examine the effects of implementing a store return option on the retailer under omnichannel retailing. The main results show that after implementing store return, (i) the optimal price of the new product remains unchanged, while the price of refurbished items may decrease in a certain condition; (ii) the optimal order quantity of the online channel increases, while that of the store decreases; (iii) in most conditions, store return strategy can achieve a win-win outcome. Specifically, consumers can enjoy more services without paying extra costs and retailer makes higher profit by implementing this strategy.