W e find that inventory productivity strongly predicts future stock returns among a sample of publicly listed U.S. retailers during the period from 1985 to 2010. A zero-cost portfolio investment strategy, which consists of buying from the two highest and selling from the two lowest quintiles formed on inventory turnover, earns more than 1% average monthly abnormal return benchmarked to the Fama-French-Carhart four-factor model. Our results are robust to different measures of inventory productivity, distinct from the well-known firm characteristics known to generate abnormal returns, and not driven by a particular subsample period. A longitudinal analysis of portfolio returns over longer holding periods shows that although inventory productivity is predictive of stock returns, its information dissipates about one to two years after release.

Category captainship (CC) is a retailing practice wherein a retailer collaborates with one of the manufacturers in a product category (referred to as the captain) to develop and implement a category management strategy. Although CC has been studied using both theoretical models and surveys, empirical evidence on the benefits and drawbacks of CC is scarce. The authors use a unique data set collected during a CC implementation to empirically examine the impact of CC on the retailer, the captain, and the other manufacturers in the category. The authors find that both the retailer's private label and the captain benefit from CC because of pricing and assortment changes. They also find that some competing manufacturers benefit from CC while others suffer. Specifically, the manufacturers that closely compete with the captain benefit, whereas the manufacturers that are in close competition with the private label suffer because the retailer protects its private label. The authors show that category sales would have been higher if the retailer had not protected its private label. This study sheds light on how joint consideration of assortment and pricing, the presence of a private label, and product characteristics may influence the outcomes of CC implementations.

We investigate the predictive power of operational performance on future financial distress in the context of the US airline industry. We focus on four areas of operational performance: revenue management, operational efficiency, service quality, and operational complexity. Using quarterly data from 1988 through 2013, we find that airlines that have inferior revenue management, lower aircraft utilization, and higher operational complexity face higher future financial distress. Interestingly, average service quality, measured by on‐time performance and mishandled baggage rate, is not associated with future financial distress, but extreme service failures, measured by long delays (over two hours) and passenger complaints with the government regarding mishandled bags, have a positive association with future financial distress. Using the association between current operational performance and future financial distress, we build a model to predict financial distress. Out‐of‐sample analyses show that our forecasting model outperforms a financial ratio‐based benchmark model up‐to eight quarters before the measurement of financial distress. Our findings inform firms, regulators, and investors by demonstrating that operational performance metrics contain useful information to predict future financial distress.

Category captainship (CC) is a supply chain practice in which a retailer collaborates with a manufacturer to develop and implement a category management strategy. We examine the role of retail competition in CC implementations by analyzing a game‐theoretic setting with two competing retailers. We first consider a benchmark model in which both retailers adopt traditional category management. Then, we consider a CC model in which the focal retailer implements CC. Comparing the equilibrium outcomes of these two models leads to the following insights: First, despite preventing the emergence of CC in some cases, retail competition increases the upside potential of CC for the focal retailer. Second, the focal retailer’s CC implementation can increase the competing retailer’s market share and profit. Third, a manufacturer may agree to serve as a captain even though CC decreases the profit it generates through the focal retailer channel because retail competition enables it to recoup its losses through the competing retailer channel. Last, retail competition alleviates concerns about the potential negative impact of CC on consumers. We discuss the implications of the study for retailers, manufacturers, and policymakers.

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