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Optimal Dynamic Allocation of Rental and Sales Inventory for Fashion Apparel Products

Altug, M. S. and Ceryan, O. ORCID: 0000-0002-7298-9781 (2021). Optimal Dynamic Allocation of Rental and Sales Inventory for Fashion Apparel Products. IISE Transactions, doi: 10.1080/24725854.2021.1982157

Abstract

There is a growing trend towards renting rather than permanent ownership of various product categories such as designer clothes and accessories. In this paper, we study an emerging retail business model that simultaneously serves rental and sales markets. Specifically, we consider a retailer that primarily focuses on renting while also selectively meeting incidental sales demand. Once a unit is sold, the firm forgoes potentially recurring rental revenues from that unit during the remaining periods. Therefore, it is critical for a retailer to dynamically decide how much of its inventory to allocate for sales and rentals at each period. We first develop a consumer choice model that determines the fraction of the market that chooses renting over purchasing. We characterize the optimal inventory allocation policy and explore how market characteristics and prices impact inventory allocation. We discuss the value of dynamic allocation and observe that the profit improvement can be substantial. In addition, we propose a simple and efficient heuristic policy. Finally, we extend our analysis to study the optimal allocation policies for (i) a retailer that is primarily a seller that selectively meets rental demand, and (ii) a retailer that does not enforce any prioritization between rental and sales demand.

Publication Type: Article
Additional Information: This is an Accepted Manuscript version of the following article, accepted for publication in IISE Transactions, Ceryan, O. and Altug, M. S. (2021). Optimal Dynamic Allocation of Rental and Sales Inventory for Fashion Apparel Products. IISE Transactions. It is deposited under the terms of the Creative Commons Attribution-NonCommercial License (http://creativecommons.org/licenses/by-nc/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
Publisher Keywords: Retailing, Operations/Marketing interface, Renting
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
Departments: Bayes Business School > Management
Date available in CRO: 14 Sep 2021 12:43
Date deposited: 14 September 2021
Date of acceptance: 30 August 2021
Date of first online publication: 28 September 2021
URI: https://openaccess.city.ac.uk/id/eprint/26750
[img] Text - Accepted Version
This document is not freely accessible until 23 September 2022 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial.

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