American Eagle Outfitters is looking to get a leg up on logistics, as an influx of online shoppers pushes e-commerce delivery expenses sky high.
The specialty retailer recently acquired a Seattle logistics startup founded by Nordstrom’s former supply chain chief. Brent Beabout, a Walmart alum and MIT MBA who parted ways with the premium department store retailer in March last year, created AirTerra to “offer a truly new shipping alternative to mid-tier retailers and brands in the U.S., allowing them to compete on a level playing field with the retail giants,” according to the startup’s LinkedIn page.
“Be on the lookout for more exciting updates on how AirTerra is changing the game,” Beabout, a nearly 20-year supply chain veteran, stated in a post confirming the acquisition, which Business Insider first reported.
Shekar Natarajan, chief supply chain officer at American Eagle Outfitters, described the critical need to modernize the supply chain along with consumers’ shifting needs.
“AEO Inc.’s business scale, coinciding with today’s ever-evolving customer convenience preferences and expectations, has reinforced the need to make supply chain transformation one of our key priorities,” he said in a statement to Sourcing Journal. “We have already made tremendous strides in our efforts to increase speed, resiliency and diversification; yet believe we have an incredible opportunity before us to become even faster, more agile and more efficient.
“The acquisition of a leading logistics business, AirTerra, and the deep experience its leadership team brings, only further fuels our excitement in the pursuit to provide a differentiated, best-in-industry experience for our customer,” he continued, adding that the startup will operate independently while supporting the supply chains of American Eagle and additional retail clients.
AirTerra says it aggregate packages from multiple shippers through its own network into major metropolitan areas, in contrast to legacy networks that were never optimized for the demanding realities of e-commerce. This approach is the premise of its “premium” e-commerce delivery offer, in addition to it work with regional carriers and the United States Postal Service to finalize the last mile.
Though Amazon has notoriously wielded the power of both its logistics prowess and retail reach, few other merchants have devoted acquisition-level resources to bring a bona fide supply chain company under their auspices. Target notably made headlines in 2017 when it plunked down $550 million in cash for Shipt, which has since greased the wheels of the mass merchant’s same-day success, a feat it continues to trumpet in one earnings call after the next.
Blame it on the pandemic and quarantining digital shoppers who pushed fulfillment networks to the brink, but 81 percent of retailers in a recent survey stated plans to augment last-mile delivery investments over the next year, underscoring American Eagle’s decision to acquire AirTerra. Walmart’s similarly funneling dollars into mastering the last mile, investing in DroneUp in June and unveiling the B2B delivery service Walmart GoLocal this week.
At American Eagle, e-commerce has been on a hot streak. Digital sales accounted for roughly 40 percent of its total mix, “increasing significantly” from 30 percent in the first quarter of 2019, chief financial officer Mike Mathias said during the retailer’s Q1 earnings call. Plus, the chain “leveraged e-commerce delivery expense, had fewer shipments per order and delivered to customers 1.5 days faster than in the first quarter of 2019,” added Michael Rempell, chief operating officer. AirTerra’s expertise could help the retailer improve those metrics even further.
The youth-centric chain, which reports second-quarter earnings on Sept. 2, finished Q1with $792 million in cash and short-term investments, putting it in a healthy position to pull the trigger on the AirTerra acquisition, whose terms weren’t disclosed. American Eagle pegged this year’s capital expenditures at $250 million to $275 million, though it’s unclear if it would count AirTerra toward capex.
Additional reporting by Jessica Binns.
Editor’s Note: This article was updated at 9:22 a.m. on Aug. 26 to include American Eagle Outfitters’ comment.