American Eagle Outfitters is seeing more of its customers and its sales move online, a shift that is not only disrupting the company's business strategy but also the lives of more than 200 employees at the company's distribution center in Warrendale.
CEO Robert Hanson met with workers Thursday afternoon to tell them the operation that has served the South Side teen clothing retailer's growing store base for years is being shut down because it can't handle the shift required in an e-commerce world.
The distribution center in Thorn Hill Industrial Park will close in about two years, when the work will shift to a new, much bigger distribution center being built on the eastern side of the state near Hazleton in Luzerne County.
That move is just part of the infrastructure overhaul that American Eagle has been making in response to Mr. Hanson's belief that the apparel business is at a tipping point, in which any retailer who can't respond as easily to customers shopping by smartphone as those strolling into a mall could be in trouble.
For workers at the Warrendale site, that means their jobs will be going elsewhere, although they'll get 18 months to two years to consider their options.
The company is offering to help them go to the new Luzerne County facility or to another distribution center in Ottawa, Kan. It also might find jobs at its other Pittsburgh offices -- about 900 employees work on the South Side, and a data center at Thorn Hill Industrial Park in Warrendale will stay open.
But some will end up being forced to look for other jobs, since picking up and moving isn't always a good option.
"This is never an easy decision to take," said Mr. Hanson on Thursday, after he'd shared the news companywide. "We've looked very carefully at the future growth of this company."
In his view, the Warrendale operation, which had also served as American Eagle headquarters until 2007, didn't have room to expand or be reconfigured to support online orders, and it was geographically challenged.
The existing distribution center covers more than 500,000 square feet and serves the bricks-and-mortar stores that brought American Eagle to teenagers across the country.
The new one will cover 1 million square feet on a 120-acre site in Humboldt Industrial Park, where there is still more room to grow. It also has easy access to highways and transportation hubs, which has attracted Amazon, OfficeMax and AutoZone to the site. And the new distribution center will be able to serve both online and traditional American Eagle customers.
When Mr. Hanson took the job as CEO in early 2012, he said about 12 percent of American Eagle sales came through e-commerce. By the end of that year, that had grown to about 15 percent, and the gains have continued.
"The customer is really changing," he said.
Many in the industry are seeing the same shift, which is why more retailers are talking about so-called omni-channel strategies meant to make it easier to order online and pick up in stores, or even shop in stores and track down the right size of a shirt in a company's online store.
"We're at a really critical point of change as to how the business is being done," Mr. Hanson said.
He said the Luzerne County center and the Kansas center will, together, be able to serve 90 percent of U.S. customers within two days.
American Eagle has more than 1,000 stores in North America and is looking internationally for growth opportunities, shipping to dozens of countries around the world and opening stores in several foreign markets. Mr. Hanson, who has indicated in recent earnings discussions a willingness to trim the store base if needed, said Thursday that more distribution operations abroad may be coming in the future.
The transition from Warrendale to Hazleton is expected to take about two years, with the Thorn Hill center expected to discontinue operations by July 2015.
"This is an outstanding workforce," Mr. Hanson said. "We didn't want them to be surprised."
Plans for the new direct-to-consumer distribution center were announced earlier this year.
At that time, the company was expected to invest more than $160 million in real estate, construction and stormwater infrastructure costs into the new site.
The new center is expected to create 600 jobs during peak operations.
American Eagle received help from the state Department of Community and Economic Development for the Hazle Township project in the form of a $400,000 Pennsylvania First Program grant and a $166,050 Guaranteed Free Training grant to be used for training the workforce. The site is inside a Keystone Opportunity Zone, which offers tax incentives to businesses there.
Allegheny County Executive Rich Fitzgerald said the county understands the strategy behind the move, although it is disappointed about the lost jobs.
"We have had a great relationship with AEO, which has been headquartered and operating in Pennsylvania for 36 years, and continue to value our partnership, as well as the business and jobs the global company brings to our county and state," he said.
Under Mr. Hanson's direction, American Eagle has overhauled and remodeled its operations in New York, which include design offices, and it has a new San Francisco technology center meant to partner with teams in Pittsburgh and New York.
Recent quarterly earnings reports have been disappointing, as a number of teen retailers have reported sales declines over the summer driven by a mix of fashion misses, high teen unemployment and tough competition. Mr. Hanson said he's confident the overall strategy is sound and the changes will help American Eagle compete going forward.
He said the company is committed to keeping its headquarters in southwestern Pennsylvania. "Our intent is to remain a strong Pittsburgh company."
Teresa F. Lindeman: email@example.com or 412-263-2018. First Published September 5, 2013 5:00 PM