American Eagle Outfitters is literally serious about owning its supply chain

Discussion
Photos: Getty Images/cnicbc; Quiet Logistics
Nov 04, 2021

American Eagle Outfitters (AEO) will acquire Quiet Logistics in a $350 million cash deal, another step in a strategy to gain greater control over its supply chain.

The acquisition marks the second supply chain deal in recent months for the apparel retailer. It comes at a time when supply chain disruptions have become commonplace for brands and retailers.

Quiet Logistics, which is based in Massachusetts, operates in-market fulfillment centers for AEO in Boston, Chicago, Los Angeles, Dallas, St. Louis and Jacksonville. The facilities make use of robotics and human personnel to provide cost-effective same- and next-day delivery services for AEO and other retailers and brands.

“Our vision is to create an on-demand, hyper-scaled operations platform that enables brand success,” said Jay Schottenstein, AEO’s executive chairman and CEO. “Quiet Logistics has provided significant benefits to AEO over the past year and we are leveraging our healthy cash position to ensure ongoing advantages.”

“A reliable and consistent in-market fulfillment network is vital in today’s marketplace. The Quiet Logistics team shares our vision for an asset-light, technology-led supply chain network and brings strong expertise,” said Michael Rempell, AEO’s COO.

The deal for Quiet Logistics follows American Eagle’s August acquisition of AirTerra, a startup founded by former Nordstrom chief supply chain officer Brent Beabout, which has developed a shipper aggregator system it claims will deliver packages more quickly and with greater reliability and less cost.

AirTerra’s system aggregates packages from multiple shippers through its own network in major metropolitan areas. It’s “point-to-point” network is designed to ship parcels across long zones faster and with a greater degree of control than offered through legacy shippers. In the end, companies selling goods online should see the time from “click to deliver” reduced along with costs for those deliveries.

Mr. Rempell said on his company’s second quarter earnings call in July that “transforming our supply chain is the major priority” for AEO.

We are delivering products to customers faster, and despite industry-wide cost increases, our delivery expense is leveraged as a percent of sales,” he said. “Needless to say, I believe our supply chain platform truly is a competitive advantage. The investments we’ve made to-date are paying off. As global supply chains continue to be disrupted, this is creating opportunities for us to become even faster, more agile and more efficient.”

DISCUSSION QUESTIONS: What roles do you see the acquisitions of AirTerra and Quiet Logistics playing in AEO’s supply chain strategy? What do you see as the biggest opportunities connected to the supply chain for AEO and other retailers?

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"More of a stake in supply chain will give the retailer more power and leverage to control and manage the disruptions in getting goods on shelves and endless aisles. "

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13 Comments on "American Eagle Outfitters is literally serious about owning its supply chain"


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Neil Saunders
BrainTrust

Logistics is one of the new battlegrounds in retail with more and more retailers looking to develop a competitive advantage as fulfillment becomes a bigger part of most businesses. Innovative technologies, control over the cost base, and the ability to quickly scale as needed are all reasons why more retailers will look to develop, or acquire, in-house expertise in this space. Of course Amazon started on this journey many years ago so other retailers have some catching up to do!

Jeff Sward
BrainTrust

I’ve long thought AEO is one of the best run retailers in the mall. (Disclosure — I worked for AEO for about four years but that was 20+ years ago.) Their merchandising and inventory discipline is second to none. So it comes as zero surprise to me that they would make this kind of strategic move in support of their business. The combination of fashion apparel and discipline does not have to sound like an oxymoron. It’s more than possible to take risks in a disciplined manner. And a deeply managed logistics and supply chain is a huge part of the equation. The ability to control the time/action calendar is at the heart of being able to take fashion risk based on as much data as possible. And that scenario is created by managing the supply chain and shortening the window from ideation to on-floor as much as possible. Huge win for AEO!

Scott Norris
Guest

I haven’t heard the pinpoint timing value of logistics control described as well as this before — of course it makes total sense. As an old logistics hand, I tip my hat!

Jeff Sward
BrainTrust

Thanks Scott. The premise is that the more basic styles have more sold history and a more predictable future demand curve. And they can live on a longer T/A calendar based on that predictability. The higher the level of novelty or fashion, the lower the level of predictability and therefore it makes a lot of sense to test and let the data drive more of the assortment. Without testing, it’s total guess work. It’s doubly difficult to test and buy bulk on a reduced T/A calendar, but the dividend is data driven fashion. It’s possible.

Bob Amster
BrainTrust

These are hefty price tags. If Quiet Logistics is taken out of the public market and only services AEO, I imagine a reduction in creativity and innovation. If Quiet Logistics continues to service other customers, those customers may view Quiet Logistics as giving preference to its parent company. Murky situation.

Carol Spieckerman
BrainTrust

American Eagle is following a growing number of retailers including Amazon and Dollar General that believe ownership is the best way to take out precarious supply chain variables. It isn’t the only way, as I covered in my latest podcast episode but it’s a good option for retailers that can afford to play a long game.

Liza Amlani
BrainTrust

Such a brilliant move by American Eagle Outfitters. More of a stake in supply chain will give the retailer more power and leverage to control and manage the disruptions in getting goods on shelves and endless aisles. There are so many unknowns in what’s to come in terms of the trucking industry and vaccine mandates so controlling what we can is critical.

Peter Charness
BrainTrust

As large as AEO is, I still wonder if a single retailer (other than Amazon/Walmart) really needs a captive logistic capability in market. Could they get more efficiency by using an aggregator/carrier such as FedEx? But I’m sure they carefully considered the economics of this buy and the combination of cost and total control worked out. The larger supply chain issues of getting product into the U.S. remains bottlenecked to pretty much all inbound operations.

Andrew Blatherwick
BrainTrust

Some of us have been saying for many years that a retailer’s supply chain will be their competitive edge and give them an advantage. With what is happening in today’s world, this is fast becoming evident to retailers like American Eagle. A word of caution – AEO is a retailer and not a supply chain company. Running a supply chain business that is handling not only your own brand but other brands’ merchandise is a different animal and needs focus and expertise that is not always aligned to running a retail operation. Another word of caution – with the outcome of COP26, there is going to be significantly more pressure on retailers and consumers to reduce their impact on the environment rather than speed of delivery and same-day delivery, which is never the most efficient. Buying into new technology to make the process more efficient is great foresight, just make sure that technology is not optimizing the wrong thing in terms of speed versus ecological efficiency.

Rick Watson
BrainTrust

Congrats to Bruce Welty again :). He keeps going from strength to strength.
I don’t think this will become all too common, except for the largest retailers.

If AEO is smart, they will just leave it alone and allow Quiet to continue to innovate.

David Mascitto
BrainTrust

Interesting acquisitions. This could go just beyond controlling fulfillment. Perhaps AEO has aspirations of becoming an online marketplace … time will tell.

Steve Montgomery
BrainTrust

Owning more of the supply chain may help with the distribution to the stores, but retailers still face the supply chain issues of getting the goods to the distribution center.

Craig Sundstrom
Guest

I found the title confusing, as it seems they’re really trying to control their distribution chain; but anyway, how do we grade the effort ? Realistically few of us know anything about the businesses acquired, so the reaction is likely predicated upon assumptions that they’re great companies, and all will go as hoped. Perhaps; and I give them points for bold thinking. But it’s also important, I think, to remember things often don’t go as hoped … and the more divorced from core competencies the move is, the bigger is the danger. So my grade at this point is “incomplete.”

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Braintrust
"More of a stake in supply chain will give the retailer more power and leverage to control and manage the disruptions in getting goods on shelves and endless aisles. "

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