When Offline Stores Reduce Online Returns

Among the dark sides of contemporary multi-channel retailing are the vast amounts of product returns, especially in the online channel. High product returns not only put pressure on the retailers' profitability, but also come at high societal and environmental costs. A central question then is whether multi-channel retailers can use their offline stores to help reduce product returns in the online channel without harming online sales. In an empirical study, we address this issue using data from a large Dutch shoe retailer. We develop a novel spatial model to estimate the influence of proximate retail stores on customers' online shopping behavior, while controlling for spatial and customer heterogeneity. Results demonstrate that an increased offline channel presence indeed reduces online returns, depending on the product's risk profile, without significantly lowering online sales. Offline stores can thus be an effective and appealing way for retailers to mitigate the negative impact of online shopping related to product returns.