MGT 322 Logistic management

Developments in Retail Logistics: Towards Generating

More Consumer Value

A. Coskun Samli Terrance L. Pohlen

Laurence Jacobs

ABSTRACT. In this article, the authors distinguish between in-store and out-store logistics. While the first may generate more value for the customer in terms of ease of shopping, pleasant ambience among other psychological factors, the second deals with cost cutting and generating better financial choices for the customer. Whereas both of these are criti- cal and must have an interactive, synergistic effect, the in-store logistics force the retailer to control the total supply chain and the out-store logis- tics creates temptation for the suppliers and/or logistics firms to control the total supply chain. While the out-store logistics appear to play a ma- jor role in large scale retailing, in-store logistics are more critical for small scale retailers. Six key research propositions are presented through- out the paper to be used in the exploration of this rather neglected area. The authors maintain that if the overall function of the supply chain were to generate optimal results, the in-store and out-store logistics must work

A. Coskun Samli is affiliated with the Department of Management, Coggin College of Business, University of North Florida, Jacksonville, FL. Terrance L. Pohlen is affili- ated with the Department of Marketing and Logistics, College of Business Administra- tion, University of North Texas, Denton, TX. Laurence Jacobs was affiliated with the University of Hawaii at Manoa; he has since retired.

Address correspondence to: A. Coskun Samli, Department of Management, Coggin College of Business, University of North Florida, 4567 St. Johns Bluff Road South, Jacksonville, FL 32224 (E-mail: [email protected]).

Journal of Marketing Channels, Vol. 13(2) 2005 Available online at http://www.haworthpress.com/web/JMC

© 2005 by The Haworth Press, Inc. All rights reserved. doi:10.1300/J049v13n02_05 81

together so that the retailing sector can generate more consumer value. It is maintained that there is a need for better communication flow between the retailer and supplier through the modern information technology tools. [Article copies available for a fee from The Haworth Document Delivery Service: 1-800-HAWORTH. E-mail address: <[email protected]> Website: <http://www.HaworthPress.com> © 2005 by The Haworth Press, Inc. All rights reserved.]

KEYWORDS. Retail logistics, channel communications, supply chain management, retail performance

INTRODUCTION

Consider the following two cases:

• Store A, a specialty store of ladies’ wear and accessories, is located in a heavy pedestrian traffic area in a fashionable mall. The store is attractive from within as well as without. Good quality merchandise and some well known brands displayed carefully and tastefully makes the store a warm place to shop with very attractive ambience. In essence, it is operated on the basis of brand centered management (BCM) as well as store centered management (CCM).

• Store B is a wholesale club that caters to thousands of member cus- tomers at retail. Merchandise is categorized and located in a space specific manner. It emphasizes the interrelatedness of products in categories and focuses on improving the performance of whole product categories rather than individual brands. Customers are not there to socialize, discuss merits of merchandise and shop in a relaxed manner. Thus, the store pays much attention to category management (CM).

Both of these stores are trying to generate consumer value which is likely to be measured by their respective sales. Indeed both are trying to make certain products available for their clientele to be purchased as they are needed. Among other considerations, both stores are very much dependent on logistics. Store A needs to have the most desirable mer- chandise and must arrange it carefully so that it will be easier and pleas- ant for the customers to shop. Here in-store logistics of handling the merchandise efficiently and effectively and coordinating their presence

82 JOURNAL OF MARKETING CHANNELS

within the store with outside supply goes way beyond conventional merchandising practices.

Store B, on the other hand, deals primarily with much larger quanti- ties of merchandise and with their availability within the store. Here out-store logistics deal very much with the movement, storage and de- livery of the merchandise to the store. It is easy to see that Store A puts much more effort into in-store logistics related activities whereas Store B dwells more upon out-store logistics. If it is a part of a large distribu- tion system, Store B will benefit from distribution accuracy, large vol- ume discounts, labor requirements and processing time advantages. These are all out-store logistics (Berman and Evans, 2002). Thus, both Stores A and B are trading off between in-store and out-store logistics. Store A is concentrating on in-store logistics which is actual handling, arranging, ordering and processing merchandise within the store, and Store B is concentrating on out-store logistics which is the movement of large volumes of merchandise, its storage and delivery to the store.

The ultimate measure of supply chain success is the level of perfor- mance achieved at the retail level. If the retailer cannot make certain products readily available at the price and conditions desired by the con- sumer, the result may not be simply the loss of one sale. If the cus- tomer’s needs are unmet, the effects of dissatisfaction can quickly multiply. The consumer may go to another store, enjoy another retail experience, and complain about the earlier negative experience. Con- ceivably a lifetime stream of revenue can be diminished or totally lost (Taylor and Fawcett, 2001).

This can be a very costly proposition for a retailer as well as the entire supply chain. One restaurant estimated that the cost of one dissatisfied diner who would never return could run as high as $25,000 in profit (Taylor and Fawcett, 2001). The companies comprising the supply chain have also made a large investment in developing, promoting and dis- tributing the production. This investment yields no value when the product is unavailable at the time and point of consumer demand. Thus, the measurement of the supply chain performance at the retail level is extremely critical.

On-shelf performance, at the retail level, in itself is the most impor- tant bottom-line measure of supply chain performance because it shows the monetary effect on customer satisfaction. It demonstrates the overall effect of supply chain performance on customer satisfaction. Stock- outs, for instance, are considered to be the most important cause of con- sumer dissatisfaction (Taylor and Fawcett, 2001).

Research Notes 83

In addition to the obvious importance of on-shelf performance, there are also the not so obvious aspects of this important indicator. On-shelf performance relies on, first and foremost, availability of merchandise. If, for instance, a mass merchandiser or a category killer (Store B above) does not have the expected merchandise, or is out of advertised prod- ucts, this can cause irreparable damage to these retailers. But, it does not stop there. On-shelf performance is closely related to merchandise qual- ity, price, product freshness, timing of availability, merchandise mix, service and return possibilities. These are, of course, all within the es- tablished price level where retailers function. Mass merchandisers and category killers must offer products within the price ranges that will generate demand from the consumer. Within these constraints, on-shelf performance is the major output of retail logistics.

In this article, the supplemental or supportive aspects of retail logis- tics are discussed. More specifically, the merchandise quality, timing of availability, merchandise mix, service and return possibilities are ex- plored within the context of retail logistics. As discussed earlier in the examples of Stores A and B, a distinction is made between in-store and out-store logistics and how they contribute to success at the retail level. It must be kept in mind that retail success is not only profit but also is creation of consumer value which leads to store loyalty (Samli, 1998). We maintain that upstream, for the retailer, or out-store logistics, will not be effective if managers of supplier or logistics firms do not recog- nize the importance of downstream, for the retailer, or in-store, logis- tics. Similarly, if the retail manager does not understand how out-store logistics affects performance, these processes cannot be fully integrated and achieve their desired outcome. Integration of in-store and out-store logistics must go beyond information exchange to include the sharing of cost information to ensure the most cost effective trade-offs have been attained. These considerations are not always discussed as part of retail logistics, and traditional retail merchandising falls short of what is needed to be considered for successful handling of the merchandise. But, failing to incorporate in-store and out-store logistics within the constraints of total retail logistics may cause a disaster for the on-shelf performance of the retailer and negatively impact customer satisfaction. From our discussion thus far a research proposition can be formulated:

RP1: Distinguishing in-store and out-store retailing logistics can provide more sensitive analytical capabilities for a retailer.

84 JOURNAL OF MARKETING CHANNELS

The retailer, by distinguishing these two concepts, can become more sensitive to merchandise handling, merchandise mix and ambience. This sensitivity can also further be connected to the merchandise move- ment and their supply in adequate quantities and on time.

RETAIL IN-STORE LOGISTICS

Retailers, particularly large retailers, have been demanding more help from their suppliers in terms of in-store logistics (Lall, 1993). The problems relating to deciding where the merchandise should move, lo- cating the merchandise, ticketing the merchandise, tracking it, enhanc- ing inventory probability and delivering more customer service are all components of in-store logistics concept. In-store logistics, as can be seen, is significant at large scale retail stores as well. However, this topic is particularly critical in retail stores where the relative value of store space is not considered to be homogeneous. As reviewed later, in-store logistics, may lead in the direction of utilizing the most valu- able floor space for the merchandise mix that will yield greatest possible profits. In-store logistics is tremendously influenced by customer ser- vice demands. Here the small retailer may have a noticeable advantage since closeness to customers and interacting with them are much more routine. The retailer must be sensitive to these demands and adjust in-store logistics accordingly. More systematic analysis of the retailer’s closeness to its customers can reveal much valuable information that can be used further by the retailer. Each retailer will have to develop its own approach to RP1 above.

Customer service is important for retailers because it leads directly to customer satisfaction (Ellram et al., 1999). Customer service is the pro- cess that provides significant value-added benefits. It includes order completeness, cycle time, performance consistency and ability to re- spond to special services and information requests (Ellram et al., 1999). Ellram et al. (1999) further maintain that customer service involves up- stream channel relationships. In other words, if the upstream channel re- lationships are favorable, in-store logistics become more synergistic. The retailer, thus, has a greater opportunity to provide better services for its customers. However, in addition to the identified services, two addi- tional logistics considerations need to be presented here: psychic stock influences and return center logistics. These are basically hybrids belonging to both in-store and out-store logistics.

Research Notes 85

Most literature dealing with distribution, logistics or even with retail- ing does not recognize a relationship between inventory levels and sales. It must be realized that inventory is not just a dependent variable developing only the supply side functions of the retail business. Lasson and DeMarais (1999) maintain that stock is an independent variable that plays an important role in stimulating demand within the store. Thus, whereas the demand-servicing function of stock is commonly treated in logistics literature, the demand-stimulating function is neglected. It is important to realize that there is a psychological dimension to retail stock. For example, imagine an American tourist going to a store in Eastern Europe during the communist era. The store is more than half empty. This certainly could give the impression that it is not worth re- turning. Similarly, after the Chapter 11 announcement of K-Mart stores, many outlets have maintained less than minimal inventory. In such cases the inventory will be composed of more standard items than wider appealing variety. Certainly, this will not be very enticing for their cus- tomers to come back. Larson and DeMarais (1999) maintain that retail- ers must consider full-shelf merchandising that would lead to “power merchandising” as exercised by high-performance retailers such as: Toys “R” Us, presenting large displays of major in-store-offerings of key merchandise; Wal-Mart presenting mass displays; or Hyper-Mart USA offering “enormous” quantities of merchandise. Inventory models with psychic stocks are not quite well developed yet, but it is clear that psychic stocks are, or should be, very influential in identifying or for- mulating customer services.

Our observations here lead in the direction of a research proposition.

RP2(a): If stock is considered as an independent variable, certain psychological dimensions of retail stock analysis would surface.

RP2(b): Stocks as independent variables can generate additional de- mand as they also reinforce the store loyalty. This is more readily achieved through in-store logistics by small retailers.

Often academics take a narrow view of in-store logistics. Many seem to define this as inventory control (Ellram, LaLonde, and Weber, 1999; McLaughlin, Perosio, and Park, 1998; Urban, 2002). The inventory con- trol issue may be broadened substantially to include shelf space manage- ment (Anderson and Amato, 1974; Borin et al., 1994; Corstjens and Doyle, 1981; Urban, 2000; Zurfryden, 1986) or inventory completeness,

86 JOURNAL OF MARKETING CHANNELS

special inventory requests, and stoking errors (Ellram, LaLonde, and Weber, 1999) but these are mainly inventory control problems.

In this article we take a somewhat broader approach to in-store logis- tics. We also include the issues of store layout (including floor space al- location) and departmental layout. While these topics may not be a direct part of the conventional perception of logistics, they have a pro- found effect on the in-store logistical decisions and therefore should be a part of the general model. Thus, the main goal of in-store logistics management is to increase sales and profits by generating customer value through psychological and power merchandising. Handling the products and enhancing their availability are all important parts of this in-store logistics activity. These logistical decisions are not made in a vacuum. Merchandise location, for example, may depend on the type of merchandise being displayed as well as the store’s orientation to internal layout.

Store Layout–For most stores the amount of space that can be devoted to retailing activities is fixed, at least in the short run. Stores have needs for both selling and non-selling space. Non-selling space needs to include space for sales support such as receiving new merchandise, stock rooms, offices, training rooms, bathroom, lunchrooms, etc. Non-selling space is also needed for aisles, fitting rooms, credit areas, and customer services.

The problems of sales space allocation are often related to deci- sions of (1) how much space to provide for certain types of merchan- dise, (2) where to place the space, and (3) how to design customer access to the merchandise. Most retailing textbooks deal with these issues in depth. Dunne, Lusch, and Griffith (2002) provide a good summary of the space productivity index model (p. 502-505). This model can be used to help determine department size as well as in- store location. Other closely related problems include whether the merchandise needs wall space or access to fitting rooms. In-store lo- gistics are therefore intertwined with the strategic department loca- tion theory.

Some of the more common methods of strategic department location theory include:

Relative Location Advantages–Some departments in a store are better located than other departments. The ground floor, for example, may be more valuable than a higher floor location. A department lo- cated near the door to the parking lot may have greater value than one in the center of the store. In general, better locations are close to store en- trances, escalators (or elevators), and main aisles. Some stores use the

Research Notes 87

Space Productivity Index to determine where a department should be located.

Impulse Products–An impulse purchase department is dependent upon the number of customers exposed to the merchandise. Many de- partment stores place costume jewelry, fragrances, and cosmetics in high traffic areas to encourage impulse purchasing. Supermarkets place magazines and candy in the checkout aisles for similar reasons.

Demand/Destination Areas–Another theory of location suggests that departments that are specialized or have high presale demand should be placed in relatively more remote sections of the store. Ex- pensive specialty items, store restaurants, and beauty salons might fit in this category. Levy and Weitz (2001) suggest “These departments are known as demand/destination areas because demand for their products or services is created before customers get to their destina- tion” (p. 568).

Seasonal Needs–Some products experience a wide seasonal demand fluctuation. Air conditioners and fans might require large displays in the summer but relatively small space in the winter. Sometimes seasonal goods are complementary. Some stores will share space between the Christmas items and the summer furniture.

Physical Characteristics of Merchandise–Some items like furniture, by their nature, will require large amounts of floor space. Other departments like pictures or mirrors may need wall space for display. Still others may need easy access to stockrooms. These physical needs may dictate the de- partmental location.

Adjacent Departments–Yet another theory of departmental locations suggests the complementary products be located near each other. Thus the shoe and the handbag departments may be in proximity. Department location is based on the customer needs rather than on traditional loca- tions.

Power Aisles–Power aisles may also be attractive options. Smith and Burns (1996) define a power aisle as:

A single dominant aisle in a retail store characterized by mass dis- plays of relatively large quantities of a relatively small number of SKUs (Stock-keeping units or individual merchandise items) of staples or well-accepted products. These displays are typically ac- companied by signage identifying these products as possessing significant cost savings from regular prices or from the prices of competitors. (p. 7-8)

88 JOURNAL OF MARKETING CHANNELS

Customer Traffic Flow–Departmental layout is also a part of in-store logistics. The traffic pattern selected for a store or depart- ment can have a major impact on the type of merchandise, the quan- tity of goods, and the perceived quality of the items to be displayed. Traditionally textbooks have described the free flow and the grid, gridiron or free-flow layouts. There are, however, several additional layouts to consider. The racetrack layout or loop is useful in getting customers to visit multiple departments. The concept suggests the aisles be designed like paths that provide access to several depart- ments. The idea is to provide a feeling of passing through several re- lated or complementary small stores (Dunne, Lusch, and Griffith, 2002.) This experience may encourage impulse purchasing (Levy and Weitz, 2001).

Return Center Logistics–Returns management has a significant place in customer services that, in turn, influences in-store logistics. It is proposed that a retail strategy should be integrated into retail logis- tics for the products that come back through the supply chain because they cannot be sold (Greve, 2002). It may be more cost efficient to deal with unsaleable products by moving them to a central return center and selling in a secondary channel than letting them occupy valuable sales space with major markdowns to encourage fast sales. Thus, re- turns management may be appropriate particularly if the markdowns are sending questionable psychological messages. More than 2,900 Sears sales locations ship the unsaleable merchandise to three central return centers (CRC) in Atlanta, Columbus and Sacramento. Here the negative psychological implications of unsold merchandise and ex- cessive markdowns must outweigh the cost of returning the merchan- dise. Once again, the psychological and perhaps immeasurable aspect of in-store logistics becomes a focal point.

Availability–Once a customer enters a retail store he/she expects to find certain merchandise within a reasonable time frame. Finding cer- tain merchandise implies overstocking the store so that everything can be found. A reasonable time frame implies minimizing the inventory so that whatever is being looked for can be found easily. But obviously in between there are in-store logistics that can make it possible to find the right kind of merchandise in the right places that would enhance the ap- peal of the store and store loyalty (Samli, 1998). Here, the relationship between the retail inventory function and customer service consider- ations become obvious.

It is therefore important to reiterate that retail inventory control activity is significant in determining the nature of and guiding the

Research Notes 89

characteristics of out-store logistics and retail buying. Out-store lo- gistics could be more effective if in-store logistics can identify the merchandise needs more clearly. Our discussion here leads to a re- search proposition.

RP3: While in-store logistics lead in the direction of making the store more customer friendly, they also provide the guidelines for out-store logistics and retail buying.

OUT-STORE LOGISTICS

Supply chain management started as a strategic partnership be- tween manufacturers and their immediate suppliers. It is enhanced by incorporating physical distribution, transportation and warehousing functions (Tan, 2002). Thus, supply chain management expanded into efficiency (to reduce costs) and effectiveness (to add psychological value) of the total supply chain. Manufacturers used supplier strengths and technology to support efforts leading to new products (Morgand and Monczka, 1995). Simultaneously, retailers integrated their activi- ties with the out-store logistics providers to receive direct store deliv- eries (St. Onge, 1996). Out-store logistics made it possible for retailers to receive already more efficiently produced products with more speed and less cost. It must be realized, however, that the out-store logistics is activated by retail buying, which is directly influenced by numerous forces such as on-shelf performance of psychic stock influences, among many others. However, from an out-store logistics perspective, acti- vating a quick response system by the retail store is critical. The quick response system brings together the principles of stock management and the conditions to eliminate potential conflicts between the inven- tory policies of trading partners. It must be based on a genuine under- standing of both parties’ motivations and operations (Whiteoak, 1999).

Our discussion thus far enables us to construct a retail logistics model inductively. All of the key points in our discussion up to this point are brought together interactively to illustrate the finer points of in-store and out-store logistics and their interrelationship. These are illustrated in Exhibit 1. Although the logical flow of activities and their relative importance may vary from one retailer to another, the exhibit displays the intricacies of the whole process of retail logistics.

In recent years out-store logistics have expanded into category man- agement (CM) which is a process for managing entire product categories

90 JOURNAL OF MARKETING CHANNELS

as strategic business units at the store level. In addition to transportation and merchandise handling cost advantages, CM can be customized on a store-by-store basis enhancing the store’s competitive advantage. In all CM arrangements the supplier plays a critical role influencing the store’s in-store logistics and on-shelf performance. Dussart (1998, p. 2) proposes two key objectives for CM:

1. To define the basic business unit as the product category rather than specific brands or product lines which implies deemphasizing brand centered management (BCM).

2. To customize marketing as closely as possible to local shopping patterns. This means attempting to enhance on-shelf performance.

Whereas the first objective above is taking care of out-store logistics that works particularly well for the large retail firm, the second is in- store logistics and does not quite work as beneficially as the first objec- tive. This is because outside logistics service providers simply do not have enough sensitivity and knowledge towards the needs and functions of in-store logistics of a particular store. In fact, they may not be much interested in this area since the potential sales volume in question for a small retailer may not be large enough to warrant much attention. From our discussion we could construct a research proposition.

RP4: While CM may be very cost efficient for large retailers, CM managed by logistics service providers can lose significant in- store logistics advantages specifically important for smaller retail- ers.

In recent years CM has been moving in the direction of “category captain” (CC) arrangements, whereby a supplier that happens to be the category leader takes on a significant role in the CM. The CC arrange- ment again could provide substantial cost and resource benefit to the re- tailer (Desrochers, Gundlach, and Foer, 2003). However, first, many small retailers do not have the critical volume to make CM and CC fea- sible. Second, they do not receive the advantages of the out-store logis- tics related to this area. Third, the unique advantage of small retailers is in heavy emphasis on in-store logistics that provide an all important am- bience advantage. Thus, out-store logistics are gaining more power over in-store logistics in large scale retailing and are not being particularly effective to the in-store logistics needs of small scale retailing.

Research Notes 91

A ct

iv a tin

g Q

u ic

k R

e sp

o n se

S ys

te m

O n -S

h e lf

P e rf

o rm

a n ce

In -S

to re

L o g is

tic s

C u st

o m

e r

S e rv

ic e

In flu

e n ce

s

M o re

S p e e d

L e ss

C o st

O u t-

S to

re L o g is

tic s

R e ta

il In

ve n to

ry C

o n tr

o l

P sy

ch ic

S to

ck In

flu e n ce

s

R e tu

rn C

e n te

r L o g is

tic s

R e ta

il B

u yi

n g

E X

H IB

IT 1

. T

h e

M o

d e

rn R

e ta

il L

o g

is tic

s M

o d

e l

92

THE DILEMMA AND FUTURE OUTLOOK

If we divide total retail logistics activity into two areas, in-store logis- tics and out-store logistics, then we realize that there is a significant di- lemma in the optimization of the supply chain management or in the generation of maximum consumer value at the retail level. Whereas suppliers are interested in out-store logistics in the form of category management, or category captainship, and generating positive impact for the retailer’s overall performance, particularly in terms of cost and efficiency, they are not quite capable of making an impact on the subtle- ties of in-store logistics. Therefore, they tend to emphasize out-store lo- gistics. This may be adequate and attractive enough for large retailers.

Thus, in large scale retailing through category management (CM) and particularly through category captainship (CC), in-store logistics is giving way to out-store logistics. In-store logistics is an important con- cept for the large scale retailer as well. No matter how large, the retailer must have some sensitivity for in-store logistics implications as well. Without some degree of in-store logistics the retailer cannot make an impact in the market and establish a competitive advantage. This is par- ticularly true for millions of small retail establishments. Whereas the supplier has more expertise in handling out-store logistics and making some inroads into in-store logistics in large scale retailing, small retail- ers have just the opposite needs. For them the in-store logistics come first. Thus, it is very difficult to imagine the optimization of the supply chain performance for retailing as a whole. If the retailer calls the shots, then out-store logistics may fall short. If the supplier calls the shots, however, the in-store logistics may fall short. Priorities of the retailer and the supplier are not the same and these priorities change at the retail level by size.

The following research proposition, thus, is constructed.

RP5: There must be an optimal ratio between in-store and out-store logistics. The parameters of such a ratio are extremely critical for both individual retailers as well as the retailing sector.

Just how much emphasis is on in-store logistics and how much on out-store logistics needs to be decided by each and every retailer indi- vidually. The retailer, by research and experience, must reach a stage to make such a critical decision.

Several collaborative efforts between out-store and in-store logistics have begun to take place. Examples include quick response, continuous

Research Notes 93

replenishment, collaborative planning and forecasting replenishment, and vendor managed inventory. These techniques provide the ability to reduce costs and enhance the efficiency in merchandise handling; how- ever, managers require a more thorough understanding of where costs have been reduced and how to equitably allocate the resulting benefits and burdens (Norek and Pohlen, 2001). The sharing of cost information is far from commonplace between retailers and their upstream counter- parts. Effective integration of in-store and out-store logistics requires a workable trade-off of multiple cost components to obtain the lowest to- tal cost such as inventory held at each tier in the supply chain, order fre- quency, warehousing, handling, transportation, information technology, and lot sizes (Stock and Lambert, 2001).

If optimization of the supply chain is a highly desirable outcome, then one of these three scenarios must be considered:

Scenario 1: The supplier is the leader and initiates the optimization of the supply chain management. Perhaps it is here that the retailer makes up the losses from in-store management by the gains of out-store man- agement. This will lead to stock and cost reduction in the total pipeline, improved product availability, elimination of out-of-stocks, and better information on supply issues, among others (Whiteoak, 1999). This is a functional scenario for large scale retailers.

Scenario 2: The retailer is in charge and in-store logistics dictate. The optimization of the supply chain process is decided by conditions estab- lished by the retailer who will make up for the missed opportunities from out-store logistics, by in-store logistics gains. This will lead to placing, locating and moving merchandise more efficiently: accurate ticketing, tracking merchandise movement, and enhancing inventory profitability as a part of delivering customer service (Lall, 1993). This is they key advantage area the small retailers have over their gigantic counterparts.

Scenario 3: With the advanced information technology such as EDI, the maximum out-store logistics may be combined with maximum in-store logistics. Thus, the two aspects of retail logistics will be syner- gistically connected. It is clear that this third scenario could balance the first two scenarios to generate greater consumer value.

The research proposition here is:

RP6(a): Determining the aspects of information technology that may be able to optimize the two retail logistics options.

94 JOURNAL OF MARKETING CHANNELS

RP6(b): Using some aspect of information technology and establish- ing communications and collaboration to further improve the rela- tionship between the retailer and logistics provider.

Recent Developments

Integrated logistics systems, in recent years, have attempted to man- age inventories through improved relationships with suppliers and transportation, distribution and delivery services (Wisner, 2000). How- ever, there is reasonable doubt that in-store logistics are playing a criti- cal part in the total scheme of things.

Information technology may bridge the gap between the first two sce- narios to create the third one (Rao, 2000). In a way, this is combining the two general and often opposed strategies: to add value or reduce costs at the same time (McLaughlin, Perosio, and Park, 1998). From automated purchase orders to accuracy in order fulfillment, there are a host of func- tions that modern IT can perform to bring the two strategies not only to co-exist, but also to interact synergistically. Thus, in-store logistics lead- ing more in the direction of generating value can be combined with out-store logistics, creating cost reduction and leading towards profit op- timization and consumer value generation simultaneously. Here the re- quired cooperation goes beyond intra-firm (Mentzer et al., 2000). It includes a major role on the part of the retailer as well. It is the retailer, af- ter all, who faces the out-of-stock of popular items, or is forced to mark down certain stocks or, in general, is the deliverer of value to the custom- ers (Lowson, 2001). The proviso that the retailer must play an important role in the overall supply chain management depends primarily on how competent the retailer is in in-store logistics and how quickly and effi- ciently the retailer can generate a quick response system. The first sce- nario above must be evaluated separately in detail since it has a powerful future in generating consumer value. However, the second scenario has been tackled recently particularly by using EDI for rapid dissemination of information, replenishment, re-estimation and re-order of merchandise depending upon unexpected and rapid changes in demand (Lowson, 2001). With the advances made in information technology, the authors posit that scenario three proposed above is an important compromise that will reduce the gap between large scale and small scale retailing. Cer- tainly the winners here would be consumers since there will be a greater consumer value generated.

Research Notes 95

CONCLUSIONS AND FUTURE RESEARCH

In retailing, logistics do not just mean the improvement of supply chain efficiency. They also include the enhancement of the value adding process or supply chain effectiveness.

Future research should examine the effect of integrating in-store and out-store logistics on supply chain performance. Many firms have es- tablished logistics performance measures, but integrated supply chain metrics that capture how multiple firms affect performance remain an elusive goal (Lambert and Pohlen, 2001). The development of inte- grated metrics and the ability to demonstrate how integrated logistical effort impacts financial performance could accelerate collaboration be- tween retail and upstream logistics managers. Managers must acquire the capability to demonstrate how their performance contributes to cor- porate profitability as well as to the profitability of the other companies in their supply chain. The ability to track down financial and nonfinan- cial performance across multiple companies will enable logistics man- agers to more easily sell collaborative initiatives such as vendor managed inventory and equitably allocate the resulting benefits and burdens. This paper presents six research propositions. Exploration of each will make a special contribution to retail logistics. Additional research is also re- quired to examine the contribution of an integrated returns manage- ment process. Empirical research is required to compare the costs with discounting products for sale in-place versus returning and selling the product in a secondary channel.

In this article, the authors maintain that out-store logistics dealing pri- marily with cost reduction through CM and CC is particularly beneficial for large scale retailing. But, almost 90 percent of all retailers are small es- tablishments with four or less employees and under $1 million sales vol- ume. In-store logistics is critical for them. These two, i.e., out-store and in-store logistics, can be combined. This combination would generate more customer value for optimal results. For this to happen, suppliers and logis- tics companies must take a more constructive role of not totally dominating the logistics functions. Similarly, retailers also should not try to dominate all of the functions on the basis of on-shelf performance. The retailer must understand the connection between in-store and out-store logistics and communicate with suppliers accordingly. Suppliers similarly must en- hance their understanding of in-store logistics for optimal results.

Further integration of in-store and out-store logistics is possible and must occur to fully exploit the advantages available through informa- tion exchange to create additional value for the customer. Modern infor-

96 JOURNAL OF MARKETING CHANNELS

mation technology and developing new techniques as well as expanding the use of existing ones certainly can be extremely valuable to achieve this synergistic relationship.

REFERENCES

Anderson, E. E. and H. N. Amato (1974). “A Mathematical Model for Simultaneously Determining the Optimal Brand-Collection and Display-Area Allocation,” Opera- tions Research, Vol. 22, No. 1, pp. 13-21.

Berman, Berry and Evans, Joel R. (2002), Retail Management, Upper Saddle River, NJ: Prentice Hall.

Borin, N., P. W. Farris, J. R. Freeland (1994). “A Model for Determining Retail Prod- uct Category Assortment and Shelf Space Allocation,” Decision Sciences, Vol. 25, No. 3, pp. 359-384.

Corstjens, M. and P. Doyle (1981). “A Model for Optimizing Retail Space Alloca- tions,” Management Science, Vol. 27, No. 7, pp. 822-833.

Desrochers, Debra, Gundlach, Greg, and Foer, Albert A. (2003). “Analysis of Antitrust Challenges and Category Captain Arrangements,” Journal of Public Policy and Marketing, Vol. 22, No. 2, Fall, 1-16.

Dunne, P. M., R. R. Lusch, and D. A. Griffith (2002). Retailing, 4th ed., Orlando, FL: Harcourt, Inc.

Dussart, Christian (1998). “Category Management: Strengths, Limits and Develop- ments,” European Management Journal, February, pp. 50-62.

Ellram, Lisa M., Bernard J. La Londe and Mary Margaret Weber (2002). “Retail Logis- tics,” International Journal of Physical Distribution and Logistics Management, Vol. 19, No. 7/8, pp. 477-490.

Lall, Roger K. (1993). “In-Store Logistics: The Key to Retail Success in the ‘90’s,’” Chain Store Age Executive with Shopping Center Age, October, pp. 166-169.

Lambert, Douglas M. and Terrance L. Pohlen (2001). “Supply Chain Metrics,” Inter- national Journal of Logistics Management, Vol. 12, No. 1, pp. 1-13.

Larson, Paul D. and Robert A. DeMarais (1999). “Psychic Stock: An Independent Variable Category of Inventory,” International Journal of Physical Distribution and Logistics Management, pp. 495-505.

Levy, M. and B. A. Weitz (2001). Retailing Management, (4th Ed.) New York: McGraw-Hill/Irwin.

Lowson, Robert H. (2001). “Retail Operational Strategies in Complex Supply Chains,” The International Journal of Logistics Management, Vol. 12, No. 1, pp. 97-111.

McLaughlin, Edward W., Perosio, Debra J., Park, John L. (1998). “Retail Logistics and Merchandising in the USA: Current Status and Requirements in the Year 2000,” Journal of Retail and Distribution Management, Vol. 26, No. 2, pp. 97-106.

Mentzer, John T., Soonhang Min, and Zach G. Zacharia (2000). “The Nature of Interfirm Partnering in Supply Chain Management,” Journal of Retailing, Vol. 76, No. 4, pp. 549-568.

Morgan, J. and R. M. Monczka (1995). “Alliances for New Products,” Purchasing, January, pp.103-109.

Research Notes 97

Norek, Christopher D. and Terrance L. Pohlen (2001). “Cost Knowledge: A Founda- tion for Improving Supply Chain Relationships,” International Journal of Logistics Management, Vol. 12, No. 1, pp. 37-51.

Rao, Bharat P. (2000). “Improving Retail Effectiveness Through Technology: A Sur- vey of Analytical Tools for Physical and On-Line Retailers,” Technology In Soci- ety, Vol. 22, pp. 111-122.

“Returns Are,” (2002). Chain Store Age, Vol. 78, No. 2, pp. 2B-3B. St. Onge, Arthur (1996). “New Concepts in Supply Chain Management,” Modern Ma-

terials Handling, Vol. 51, No. 3, pp. 33. Samli, A. Coskun (1998). Strategic Marketing For Success in Retailing, Westport, CT:

Quorum Books. Smith, P. and D. J. Burns (1996). “Atmospherics and Retail Environment: The Case of

the ‘Power Aisle,’” International Journal of Physical Distribution & Logistics Management, Vol. 24, No. 1, pp. 7-14.

Stock, James R. and Douglas M. Lambert (2001). Strategic Logistics Management, 4th (ed.), New York: McGraw-Hill, pp. 29.

Tan, Keah Choon (2002). “Supply Chain Management: Practices, Concerns and Perfor- mance Issues,” The Journal of Supply Chain Management, Vol. 28, No. 1, pp. 42-53.

Taylor, John C. and Stanley E. Fawcett (2001). “Retail On-Shelf Performance of Ad- vertised Items: An Assessment of Supply Chain Effectiveness at the Point of Pur- chase,” Journal of Business Logistics, Vol. 22, No. 1, pp. 73-89.

Urban, T. L. (2002). “The Interdependence of Inventory Management and Retail Shelf Management,” International Journal of Physical Distribution & Logistics Manage- ment, Vol. 32, No. 1, pp. 41-58.

Whiteoak, Phil (1999). “The Realities of Quick Response in the Grocery Sector: A Supplier Viewpoint,” International Journal of Physical Distribution and Materials Management, Vol. 29, No. 7/8, pp. 508-519.

Wisner, Joel D. (2000). “Supply Chain Management and Impact on Purchasing,” The Journal of Supply Chain Management, Vol. 26, No. 11, pp. 33-40

Zurfryden, F. S. (1986). “A Dynamic Programming Approach for Product Selection and Supermarket Shelf-space Allocation,” Journal of the Operational Research So- ciety, Vol. 37, No. 4, pp. 413-22.

98 JOURNAL OF MARKETING CHANNELS