American Eagle Outfitters announced the acquisition of Quiet Logistics, an operator of automated distribution centers near city centers, for $350 million.
The mall-based apparel retailer spent about 8% of its market cap on a distribution business.
Quiet Logistics wasn’t even American Eagle’s first logistics buy: The retailer bought AirTerra, which focuses on middle-mile logistics, earlier in 2021. (“Middle mile” refers to delivery of products from a warehouse to a retail store.).
“People who don’t have sophisticated and efficient capabilities for shipping can’t compete,” says Michael Rempell, American Eagle’s chief operating officer.
American Eagle’s moves look necessary as shopping gets more complex post pandemic, especially for small retailers trying to compete with giants like Amazon.com (AMZN).
Shoppers want to buy online, in store, and online for pickup at the store, and they want to return purchases in multiple ways too.
If a store doesn’t have the desired brand or style, shoppers will just shop elsewhere or go online.
As a result, customers, not retailers, are in charge of the supply chain, something that has forced a rethink of logistics operations. “What it’s doing is turning the supply chain from a pure costs center to a revenue driver,” says Mark Okerstrom, president of digital truck broker Convoy.
Whether Eagle stock, which has gained 32% in 2021, is a buy is a tough question.
The shipping strategy looks smart, but Eagle investors still need to focus on fashion trends of 20-year-olds.
Shipping giants United Parcel Service (UPS) and FedEx (FDX) can also benefit from smaller retailers’ focus on logistics. UPS, for one, grew its shipping volumes with small- and medium-size businesses by almost 11% year over year in the third quarter, a sign the company is more intent on providing outsourced solutions for smaller shippers needing to compete with larger rivals.