The Spread of Scarcity: An Empirical Analysis of Intra-Firm Product Substitutability in Fashion Retailing

This study offers an empirical investigation of product shortages on sales in neighboring outlets in the setting of a multi-store fast fashion retailing chain. We use a unique dataset consisting the weekly sales and inventory levels for all the products sold by this retailer across more than 300 stores. We perform various specifications that test for the impact of stock-outs in a store chain structure. Our analysis reveals that sales for a particular item at a focal store increases when that same item experiences stock-outs in neighboring stores, especially so for neighboring stores that are physically closer to the store experiencing the stock-out. Following these empirical results, we produce some managerial insights by further exploring the data. First, we show that inferred product substitutability patterns across stores vary depending on the location type, in that product substitutability is more pronounced the outlet facing the stock-out is located on streets as compared with outlets located in malls. Second, we investigate the revenue impact of making inventory allocation decisions using the neighboring outlets' stock-out information.