Go Wide or Go Deep? Assortment Strategy and Order Fulfillment in Online Retail

Problem Definition: Expansions in product assortment undertaken by online retailers often engender operational challenges. In undertaking such expansions, retailers exercise a choice between expanding assortment depth or width. We empirically examine the relative impacts of assortment depth and width on a retailer's order delivery performance and the subsequent effects on sales revenue. We further investigate the role of logistic flexibility in this relationship.Academic/Practical Relevance: Order delivery timeliness is a critical measure of operational success in online retail. The relative impact of expansions in product assortment depth and width on order fulfillment is theoretically unclear thereby making it difficult for managers to choose between these two options from an operational standpoint. We contribute to theory and practice by empirically clarifying the role of assortment strategy on order fulfillment performance.Methodology: Employing a unique panel dataset comprising more than 200 million orders, we study the effects of assortment strategy on delivery timeliness using an instrumental variable approach. We then utilize a two-stage model to estimate the eventual impact of order delivery performance on sales. Furthermore, we employ a matched difference-in-differences approach and a novel Bayesian structural time-series model that exploit the opening of new warehouses to confirm the relationship between delivery timeliness and improved sales.Results: We find that assortment width has a greater negative impact on order delivery timeliness relative to depth. Specifically, adding five subcategories increases average delivery times by 0.21 days. We identify that this is mediated by a proliferation of multi-item orders that induces logistical inefficiencies. Further, these delivery delays result in a 6.0% drop in future sales across all offered subcategories.Managerial Implications: Our study aids managerial-decision making by providing empirical evidence pertaining to the operational consequences of expansions in product assortment and offering insights on potential mitigation strategies