Dive Brief:
- American Eagle Outfitters has rolled out a new artificial intelligence-based tool to aid in managing its inventory replenishment so that it can keep leaner stocks.
- “Early results are showing quicker and more accurate placement with improved in-stock levels,” COO and EVP Michael Rempell said on the company’s Q2 earnings call last week. “This is allowing us to better service demand with lower inventory across the network.”
- Inventories at the apparel seller were down 7% to $637 million YoY during the quarter while its gross margin rate was up nearly 7 percentage points. The company attributed higher merchandise margin to better inventory control and lower transportation costs.
Dive Insight:
American Eagle’s turn to AI for inventory management follows a long period of volatility — with both stock gluts and shortages — for most of the apparel and retail industries during the pandemic era.
The company has been testing the new AI system in its stores since last year’s holiday season. “Our pilot test this holiday proved highly successful, providing visibility into inventory availability and placement at over 99% accuracy,” Rempell said in March. “I'm very enthused about the sales opportunities, inventory productivity improvements and labor efficiencies we can unlock moving forward.”
A company spokesperson did not respond to Supply Chain Dive’s request for more detail about the new tool.
On the whole, American Eagle company has made steep cuts to inventories. Last year in Q2, inventory by unit volume was up 36% — and even that was described as “significant progress” in rightsizing.
Having cleared excess out of the system since then has paid operational dividends for American Eagle. “We were able to chase into high-demand items at a strong margin,” said Jen Foyle, president of the company’s American Eagle and Aerie banners. “With inventory at appropriate levels, promotions and end-of-season clearance were down dramatically to last year.”
CFO and EVP Mike Mathias noted that the company’s improved gross margin was largely due to better merchandise margins, which he tied to managing stocks. “Inventory discipline drove lower markdowns as we maintain our focus on healthy promotions,” Mathias said.
After years of wrestling with volatile consumer demand and supply chains, other retailers and brands have invested in technology upgrades to plan and manage their stocks.
Guess Inc. executives, for example, recently touted new planning tools that they say help the apparel company maintain discipline, boost margins and make better purchasing decisions. Discount retailer Dollar General is also planning to use part of a $25 million investment for a demand forecasting tool to support its stores and distribution centers.
