Identifying the right level of variety and associated inventory has long been an open question in the retail industry and academia.

More variety is expected to generate higher store traffic and higher conversion for incoming customers. Another argument is that too much variety reduces sales due to the confusion it creates in the customers’ minds (choice paradox). Higher variety also implies lower inventory per product due to limited shelf space in the stores. Hence, a critical question for a retailer is determining where their stores are currently positioned on the variety-sales curve and whether they should increase/decrease variety by extending/cutting the long tail of slow-moving products.

This research paper, written by Prof. Gurhan Kok (founder and CEO of invent.ai), uses data from a bookstore chain to investigate the trade-off between variety and inventory in retailing.

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