In-Store Pickup and Returns for a Dual Channel Retailer

The Internet and technology have changed how products are sold and delivered to consumers. Today, the most significant growth in online retailing comes from multichannel retailers that sell products both in stores and over the Internet. Recently, these retail/e-tail organizations have attempted to leverage their “brick” locations by allowing customers to pick up or return orders purchased online at retail store locations. Such options let online customers avoid both long carrier lead times and high shipping costs. However, these options come at a cost to the retailer. This paper develops a mathematical model for analytically examining the cost and value of providing in-store pickup and return options in multi-echelon retail/e-tail organizations. In this light, the model determines the optimal subset of a retailer/e-tailer's stores that should be set up to handle in-store pickups and online returns under stochastic channel demands. Computational results show that optimizing the set of pickup and return locations can reduce system cost by up to 20% on average over arbitrarily enabling all stores with Internet pickup/return capabilities, and firms can substantially increase customer value while maintaining cost minimization as an important selection criterion in choosing pickup and return locations.