Operations
31 March 2022
American Eagle Outfitters wants to lead the 'supply chain revolution'
The retailer made big moves to own its supply chain in 2021. Now it wants to work with others.
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2021 was a year of supply chain disruptions. It was also the year American Eagle Outfitters (AEO, Inc.) embraced the role of supply chain disruptor.
With the digital side of its business growing, the company turned heads in the retail world with a pair of acquisitions to strengthen its supply chain.
- In August, AEO acquiredAirTerra, a logistics startup that aggregates packages from multiple shippers, and uses a “point-to-point” network to ship packages across certain zones. This enables cheaper and faster delivery.
- In December, it acquired Quiet Logistics for $360 million in a move designed to enable same-day and next-day shipping from American Eagle stores. The third-party logistics company specializes in order fulfillment and returns management services.
The two moves were key components of a remade supply chain for AEO. The company started to put the pieces in place prior to the pandemic, COO Michael Rempell said at ShopTalk this week. Previously, the company had an effective model that was set up for a traditional retail approach, with distribution centers, technology and ship-from-store.
But EVP and Chief Supply Chain Officer Shekar Natarajan told company leaders that owning the supply chain and distribution, just like the largest retailers, would be critical for the future. Executives soon embraced this. As the company looked to make changes, it was focused in three areas:
- Making inventory more productive by pulling it out of stores and keeping it closer to customers at distribution centers.
- Making labor more productive so that employees at stores were not fulfilling orders.
- Improving deliveries to make them faster, more predictable and cheaper.
AEO had the plan. Then the pandemic arrived, and the company had to put it into action quickly. By cutting SKUs and opening more distribution centers, it made fast strides. It also partnered with other companies to support specific components of the process. Yet to achieve "hyperscale" that Natarajan said would be necessary, the company’s leaders decided that making the acquisitions was the best way to get there.
It underscores the importance of supply chain investments for growth in ecommerce. The acquisitions added fulfillment centers and capabilities. They also added more retailers using the company’s supply chain services. As of the time of the acquisition, Quiet Logistics worked with Outdoor Voices and Mack Weldon, while AirTerra remains an independent brand. Now the compny is partnering with others, offering a path for brands to work with them. AEO sees a "massive unmet need," said Rempell.
"There's a supply chain revolution happening and we want to lead it,” Rempell said. “We want to work with other retailers and brands. We think it’s leveling the playing field and allowing like-minded companies to compete with Amazon, Walmart, Target - the biggest retailers in the world.”
It's a classic case of how a part of a business that is not a company's primary product can become a growth center if it effectively solves a problem for others. American Eagle wasn't founded as a supply chain company, but it is now a meaningful player in the business. With supply chain challenges and the continuing growth of ecommerce, American Eagle sees this infrastructure only becoming more important.
“We’ve always been customer focused,” said Natarajan. “During COVID, we also realized supply chains are a customer-facing function.”
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02 June
Macy's sees 'reset year' for ecommerce
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Macy’s CEO Jeff Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.
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