Inventory strategy in a dual-channel supply chain with store-within-a-storemode and capital constraints

As issues such as the bullwhip effect stand out in supply chains, the store-within-a-store mode is being utilized by an increasing number of companies involving Channel. Manufacturers should determine the inventory decision in both online and offline channels under the “online direct selling and store-within-a-store mode”, which differs from the case of the traditional wholesale and retail mode. Consequently, manufacturers have to face more uncertainties in demand and income, bear higher operation risks, and may have to adopt bank credit or other financing methods to solve capital constraint problems. For example, since 2020, Channel has applied for a loan of 600 million pounds from the Bank of England to address financial difficulties, which will be repaid within 12 months. Facing capital constraints, how should the dual-channel manufacturer determine the inventory quantity under the store-in-store mode? What factors affect the manufacturer′s decisions and the profit of supply chain system? The aim of this study is to explore how the store-with-a-store mode influences the manufacturer′s operations and financial decisions in a dual channel system and to investigate whether the channel cooperation method changes the efficiency of the whole supply chain with dual channels when supply chain partners are capital constrained. We build a theoretical model of a retailer and a capitalconstrained manufacturer in a dual channel system by adopting the Newsvendor model and analyse the optimal online and offline inventory quantities in different channel cooperation methods. We further study the impact of the risk-free interest rate, bank loan interest rate and other factors on the optimal decisions and explore the impact of the store-with-a-store mode on the expected profits of supply chain partners through a comparative statics analysis. Finally, we investigate how the efficiency of the supply chain system depends on factors such as the portion of revenue sharing by numerical analysis. The results are drawn as follows. First, the optimal inventory quantities of the dual-channel manufacturer are affected by the bank loan interest rate and the amount of initial capital and decrease as the portion of revenue sharing or the bank loan interest rate increases. Second, the portion of revenue sharing affects the manufacturer′s expected profit more significantly when compared to the bank loan interest rate. Specifically, when the portion of revenue sharing is high ( or low), the manufacturer′ s expected profit is straightforward smaller (or greater) if it adopts the store-within-a-store mode. When the portion of revenue sharing is moderate, the bank loan interest rate also affects the manufacturer′s profit comparison in different situations. Concretely speaking, provided that the bank loan rate is relatively low, the store-within-a-store mode leads to a higher manufacturer′ s expected profit; otherwise, the manufacturer′s profit is lower under the store-within-a-store mode than under the traditional wholesale and retail mode. Furthermore, in some cases, the store-within-a-store mode yields the higher expected profit and operation efficiency of the whole supply chain, implying that it can partially coordinate the dual-channel supply chain. Some managerial implications can be derived. First, the manufacturer under the store-within-a-store mode faces higher financing risks than that under the traditional wholesale and retail mode. It should comprehensively assess potential default losses according to information such as marketing costs and adjust inventory decisions in both online and offline channels in a timely manner to avoid bankruptcy and other problems caused by demand drops or overstocks. For example, if the store-within-a-store contract has a high portion of revenue sharing, the manufacturer should reduce inventory quantities to avoid default risk. Second, the manufacturer with capital constraints should pay more attention to market information and the external environment, timely update operation strategies according to product prices and financing costs, and adopt appropriate offline channel operations. For example, when financial market fluctuations cause an increase in the bank loan interest rate, the manufacturer under the store-within-a-store mode bears higher potential default losses, so the traditional wholesale and retail mode should be used in the offline channel. Last, in some situations, the operation efficiency of the supply chain system will be reduced if the manufacturer chooses the store-within-a-store mode. Therefore, as the leader of the supply chain, the manufacturer should design a revenue compensation contract to coordinate the supply chain effectively and realize Pareto improvement.