American Eagle Outfitters (AEO) serves a demanding and evolving customer segment: 15-25 year-old consumers with high expectations of apparel selection and convenience. Founded in 1977, AEO has approximately 1,000 stores internationally, with the majority in the US and Canada . Over the past decade, AEO has had to adapt to changes in consumer behavior and trends in the retail apparel industry, such as declining foot traffic in malls, a more mobile-centric consumer, and demands for better and faster customer service. By digitizing its distribution centers and adding cross-channel visibility into its inventory, AEO has achieved a connected ecosystem to deliver orders faster and to give customers a more convenient shopping experience .
Distribution Center Management
American Eagle Outfitters has deployed a software system and optimization engine (called warehouse execution system, or WES) that it uses in its two main distribution centers in the US. At the receiving area of the warehouse, incoming packs of merchandise are immediately scanned and put on an 850-foot conveyor system, and the WES makes a real-time decision about how the product should be routed through the distribution center . The WES decides where the product is most urgently needed, based on the pending pool of orders across retail replenishment requests and direct-to-consumer orders. There’s no needless division of storage along product, retail brand (American Eagle and aerie), or sales channel lines, and as a result, the optimization engine has reduced labor costs because less picking is needed .
Customer Order Fulfillment and Preferences
Given the visibility into inventory across distribution centers and in retail stores, customers are now provided with more selection when viewing AEO’s apparel online. Batches of customers’ online orders are processed approximately every 8 minutes within AEO’s distributed order management system, and automated decisions are made about how and from where a customer’s order will be fulfilled. A customer’s online order can be fulfilled from a distribution center, via “ship from store,” or, in the case of multi-item orders, using a combination of fulfillment methods . As a result, AEO has managed to improve delivery times on customer orders, and more than 90% of customer orders have delivery times of two business days or less, which is a two- to four-day improvement over the previous system [4, 5].
AEO has also rolled out shopping alternatives to better serve their customers like the “Reserve, Try, Buy” program, in which mobile app customers request that up to 5 pieces of clothing are held for them at a nearby retail store . The Reserve, Try, Buy and ship-from-store options maximize each retail store’s inventory exposure to customers who are shopping online, which helps with shedding products that are about to go out-of-season . Although the process is seamless from the customer point-of-view, the Reserve, Try, Buy process could still become more automated, as the employee at the store must physically set aside the items and kick off an email process to let the customer know the items have been successfully reserved.
At the distribution centers, AEO has a short-term goal to better automate equipment maintenance. Currently, there is some limited digitization in place to track performed maintenance, as technicians scan a bar code with their iPads to feed into a computerized maintenance management system (CMMS) each time they work on a piece of equipment. However, technicians still roam the 1.6-million-square-foot distribution center in Pennsylvania looking for the “tell tale squeaks, noises, [and] leaks” of the equipment , instead of using more automated and predictive maintenance technology. Given that AEO’s business is highly seasonal around back-to-school and year-end holiday periods , even a small breakdown during a peak time could jeopardize their ability to meet strict customer service-level agreements .
AEO is also experimenting with leveraging beacon technology in its retail stores to send messages to customers’ smartphones. So far, AEO has prompted customers to try an item on in the fitting room to earn a reward . AEO could consider personalizing these messages based on past purchase and online browsing history to highlight specific items that the customer might like that are currently available in the store. However, this would likely be a longer-term project, as AEO’s SVP Mark Rose admits that “the company is sitting on more data than it knows what to do with” . The company should invest time in understanding their data to better interpret customers’ signals and maximize message effectiveness.
While AEO is ahead of some of its direct apparel competitors, there’s still much opportunity for digitization, from predictive shipping to 3D printing of replacement parts for its distribution center conveyor systems. How might AEO improve its responsiveness to customer demands? Could AEO surge ahead to become a fast-fashion brand by leveraging its digitized distribution network, i.e. by holding less inventory and adapting quickly to changing fashion preferences among its teenager target demographic?
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