Should small-scale online retailers diversify distribution channels into offline channels? Focused on the clothing and fashion industry

Abstract

Distribution channels have changed rapidly with the advent of online channels, and many companies built an omni-channel by adding online channels to their existing offline channels. However, mall enterprises face difficulties in broadening their distribution channel due to budget constraints, and therefore, most of them still use only one channel, offline or online. To increase their revenue, small-scale enterprises need to decide which will be more efficient, using only one channel or using online and offline channels together. This paper uses stochastic frontier analysis to estimate the technical efficiencies of small-scale enterprises selling clothing or fashion items. In addition, this paper categorizes the enterprises into two groups, those that sell their products only though the online channel and those that use both online and offline channels (omni-channel companies), and compares the efficiencies of the two groups using a meta-frontier analysis. In the results, the omni-channel group is superior to the pure online channel group by 17% in terms of technology gap ratio. These results indicate that the value of offering customers a choice of channel affects the efficiency of a company's earnings, and that the company's channel choice increases the efficiency of resource allocation.