Omnichannel retail operations with consumer returns and order cancellation

In this paper, an analytical study is performed on an online retailer's omnichannel retail operations in which consumers can cancel their order before payment and return the product after payment if the product does not meet their expectation. The online retailer's optimal pricing and inventory decisions are derived under the online-only strategy and the omnichannel strategy. The results indicate that the retail price decreases when the online retailer opens physical stores and that the omnichannel strategy is not always beneficial to the retailer. Furthermore, we identify the conditions under which the retailer benefits from the omnichannel retailing strategy.