Operations

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 acquired AirTerra, 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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