Effects of Out-of-Stock, Return, and Cancellation Amount on Order Amount of Online Retailers

Abstract

<p>Despite the spectacular success for online retailers in the last few decades, some inherent weaknesses remain, including stock-out, returns, and order cancellations, which influence financial performance of online retailers. Despite understanding the importance of these undesirable sales situations, no existing study, to our knowledge, has investigated the extent to which each issue impacts on financial performance with actual transaction data of online fashion retailers. Thus, this study aims to examine the effect of undesirable sales situations (i.e., out-of-stock, returns, and order cancellations) on financial performance (in this study, order amount) of an online retailer. In addition, the effects of undesirable sales situations on financial performance will be examined by product category (i.e., accessories, casual, kids, men's, sports, and women's clothing). The model was tested with transaction data obtained from an online shopping mall in South Korea. The data included 371 brands in six categories, with 3,367 observations in total; after exclusions (i.e., brands with less than six months observation periods), 2,996 data sets were utilized for the data analysis. This study confirmed the effect of undesirable sales situations (out-of-stock and return amounts) on financial performance of an online retailer with transaction data. Additionally, this study verified that undesirable sales situations were moderated by fashion product category.</p>