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US apparel retailer American Eagle is beefing up its fulfilment and returns capabilities with the acquisition of a second 3PL in two months, after agreeing to pay $350m for Quiet Logistics, one of its current logistics providers.
American Eagle described the acquisition as “the next step in an ongoing supply chain transformation”, and it follows the takeover of AirTerra in early September for an undisclosed sum.
Chairman and CEO Jay Schottenstein said: “An important pillar of our strategy is transforming our supply chain to create greater agility, speed and diversification. Our vision is to create an on-demand, hyper-scaled operations platform that enables brand success.”
Shippers have been scrambling to secure capacity, but American Eagle’s play clearly goes beyond this by looking to leverage logistics in a more comprehensive way; alternatively, it could have teamed up with a trucking firm or load broker or sought to deepen its collaboration with logistics providers.
Its purchase of AirTerra, which focuses primarily on the middle mile, from warehouse to store or distribution centre, was about the capability to offer same-day delivery. Management said it wanted to deliver orders to customers at a speed comparable with Amazon and Walmart.
With Quiet Logistics, it pointed to its strength in technology and robotics to support order fulfilment and returns. Quiet co-founder Bruce Welty started sister company Locus Robotics, an autonomous mobile robot provider, which was spun off in 2015.
Rick Watson, founder and CEO of e-commerce consulting firm RMW, views Quiet Logistics as a good fit for American Eagle, given the 3PL’s focus on apparel logistics and high degree of automation. In addition, Quiet Logistics can leverage a large network of fulfilment centres in Los Angeles, Dallas, Chicago, St Louis, Boston and Jacksonville, allowing it to source products close to demand and resulting in faster delivery at lower costs.
For American Eagle, proximity to customers is vital, management claiming it led to a better ordering process and brought down inventory by 40% year on year in its fiscal second quarter.
Mr Watson sees a clear trend among retailers to try and leverage logistics more as a strategic tool, in some cases resulting in outright acquisitions.
“Target started this trend by buying at least two different smaller logistics firms in 2017,” he explained. “They realised they needed to make stores little fulfilment centres to remain relevant in the e-commerce age.”
He believes this trend will continue, especially among larger retailers that have been around for some time.
New companies that built up their supply chains over the past five years are, by and large, native in e-commerce mode, but for the old guard “that grew up shipping pallets to distribution centres, which they did very well”, it has been more challenging to adapt to the requirements of e-commerce fulfilment, he said.
For some of these, it may make sense to acquire a 3PL. But clearly this is not for everybody. For retailers with revenues below $2bn, an outright purchase of a logistics firm does not make sense. These companies are better off working with a 3PL, Mr Watson said.
Retailers with revenues of $3bn-$10bn a year will be more likely to contemplate buying a 3PL to gain new capabilities and lower their cost per unit as much as possible, he continued. Owning a 3PL can also bring in an additional revenue stream, which should be welcome for the retail sector, where margins are notoriously tight, he added.
American Eagle has stressed that both AirTerra and Quiet Logistics would continue to operate independently and extend their offerings to other retail brands.
However, for those retail clients, an obvious question is if there is any danger of their data leaking to American Eagle, but Mr Watson doubted that this would happen.