Why American Eagle Outfitters’ supply chain bet is starting to pay off

The trend: There are a number of signs that American Eagle Outfitters’ push to bulk up its supply chain expertise to offer other retailers a vertical logistics solution is starting to pay off.

• The retailer cut down on its shipments per order and reduced its delivery times by 13% in Q1.
• It also recently added high-profile clients Fanatics and Saks Off Fifth and announced a partnership with Pitney Bowes to facilitate last-mile delivery from warehouses to consumers.

The retailer’s logistics push: Last year the retailer bought Quiet Logistics and third-party logistics company AirTerra in an effort to create a communal supply chain platform that it and other retailers can leverage as the ultimate “frenemy network,” Shekar Natarajan, chief supply chain officer, told CNBC.

• The combined network, which American Eagle calls Quiet Platforms, helped the retailer avoid its first year-over-year decline since Q4 by contributing roughly three percentage points to the company’s revenues growth.
• Meanwhile, the company’s retail sales were weaker than expected as it faced a number of challenges—a difficult year-over-year comparison, rising inflation, high freight costs, and a stronger-than-anticipated pivot to other discretionary categories—that led it to miss on both revenues and EPS.

The B2C2B push: American Eagle’s business-to-consumer-to-business push takes a page from Amazon while taking it on.

• Amazon built up a cloud computing infrastructure to help it boost the speed of its software engineering before it leveraged that same infrastructure for Amazon Web Services (AWS).
• Similarly, American Eagle built up its logistics infrastructure to reduce the number of packages per order and shorten its delivery windows.
• Yet unlike Amazon, it requires scale from other merchants to maximize those returns. By pooling midsized retailers’ resources, it and its customers can achieve “Amazon-like scale, Amazon-like costs, and Amazon-like capabilities,” Natarajan told CNBC.
• Quiet Platforms offers a range of services including inventory management, facilitating returns/restocking, and freight. These, it argues, enable its clients to focus on product, marketing, and customer experience rather than logistics, which is difficult to navigate as a midsized merchant.

Why it matters: Amid a challenging retail environment, retailers benefit from a diversified revenue stream.

• No retailer demonstrates that more than Amazon, which uses AWS and its rapidly growing advertising business to minimize the impact of its low-margin retail sales.
• While logistics is a critical ingredient to retail success, it is not without significant challenges.
• That’s evident as supply chain issues were the second-most cited barrier to US business decision-makers achieving performance ambitions, according to an April Proactis survey.
• That provides an inroads for Quiet Platforms, assuming it can find ways to distinguish its offering from competitors—including a similar service offered by Walmart.