Imagine ordering your favorite pair of American Eagle jeans online, only to face delayed shipping and incorrect sizing, followed by a frustrating return process. American Eagle Outfitters (AE) has taken decisive action to eliminate such negative customer experiences through a comprehensive supply chain transformation that's yielding impressive results.
1. SKU Rationalization: Focusing on Best-Sellers
AE's Chief Operating Officer Michael Rempell revealed during an earnings call that the company has dramatically reduced its Stock Keeping Units (SKUs) over the past year, concentrating resources on top-selling items. This strategic move mirrors a restaurant eliminating unpopular menu items to focus on signature dishes.
The benefits of SKU reduction include:
- Improved inventory management: Better forecasting and control of best-selling items reduces capital tied up in slow-moving merchandise.
- Enhanced production efficiency: Fewer product variations enable larger production runs, lowering costs and shortening lead times.
- Simplified supply chain operations: Reduced SKUs mean fewer suppliers, streamlined logistics, and faster inventory turnover.
2. Regional Distribution Network: The Speed Accelerator
Complementing its SKU strategy, AE has established a network of regional distribution centers across the United States. These facilities serve as forward-positioned inventory hubs that bring products closer to consumers, significantly reducing delivery times.
The regional distribution model delivers multiple advantages:
- Shorter delivery distances: Products ship directly from regional centers to customers, eliminating long-haul transportation.
- Reduced transportation costs: Leveraging local logistics providers decreases shipping expenses.
- Higher inventory turnover: Regional centers enable faster replenishment, minimizing stockouts.
Rempell noted that this network has allowed AE to reduce in-store inventory by three weeks while improving overall stock availability and flexibility.
3. Delivery Performance: 1.5-Day Improvement
The supply chain transformation has yielded measurable improvements in delivery speed. Compared to Q1 2019, AE now delivers orders 1.5 days faster despite processing fewer shipments. This enhancement provides a competitive edge in today's e-commerce landscape where speed matters.
4. Digital Transformation: Foundation for Success
AE's supply chain modernization began over a year ago as part of a broader digital strategy to better serve online shoppers. The company established logistics hubs in key markets including Boston, Los Angeles, Chicago, and Jacksonville, Florida.
These facilities work in concert with primary distribution centers to enhance delivery performance while controlling costs. Rempell confirmed the hubs have enabled faster store replenishment and reduced e-commerce delivery times by two days through localized fulfillment.
5. Regional Supply Chains: The New E-Commerce Battleground
While maintaining multiple distribution centers increases facility costs, AE has prioritized the flexibility benefits over traditional inventory cost concerns. The company reports total inventory across its AE and Aerie brands grew 2% versus 2019 levels, primarily due to Aerie's expansion, while AE brand inventory decreased through optimization initiatives.
6. Future Priorities: Returns Management
Looking ahead, AE plans to expand its distribution capabilities with particular focus on improving returns processing. As e-commerce grows, managing returns efficiently presents both operational and sustainability challenges. The company has partnered with a technology provider to enhance its returns workflow.
7. Key Takeaways for Retailers
AE's supply chain transformation offers valuable lessons for the retail industry:
- Concentrate resources on core products
- Leverage digital tools for supply chain optimization
- Build flexible, regionally distributed networks
- Prioritize customer experience in operational decisions
- Address sustainability challenges in reverse logistics
8. Continuous Improvement: The Retail Imperative
AE's ongoing supply chain evolution demonstrates that in today's competitive retail environment, operational excellence requires constant refinement. By treating its supply chain as a strategic asset rather than just a cost center, AE has positioned itself for sustained growth and customer satisfaction.