Duluth Holdings Inc. is making some hefty investments to enable it to scale, consider new channels of growth, and enhance digital engagement.
The retailer plans up to $57 million for capital expenditures to address these strategic areas, CEO Sam Sato said during its fourth quarter 2021 earnings call. The most significant investment will be in its supply chain network, Sato said of the company which operates 65 Duluth Trading Company stores across 33 states.
To this end, Duluth recently signed a long-term lease on a new fulfillment center located in Adairsville, GA. The nearly 500,000-square-foot facility will be the largest and most automated of the company’s fulfillment centers, Sato said, and is expected to be operational in late summer of 2023 and cut average delivery time in half for the Southeast region, which extends West to Texas and North along the entire Eastern Seaboard.
“This new facility will leverage state-of-the-art automated storage and retrieval technology that greatly increases the speed, accuracy, and efficiency of our fulfillment operations,” Sato said. “With robotics, the operations will be able to flex up and down with greater ease based on the seasonality of our business and mitigate some of the strains and reliance on the local labor pools.”
“This investment will be Duluth’s single largest to date and represent a critical step in transforming our direct fulfillment operations from a cost center to a value creation center,” CFO Dave Loretta said.
In addition to the new center in the Southeast, a portion of the capital will be invested into existing fulfillment locations in Wisconsin and Iowa.
“New receiving and sortation equipment will greatly increase our daily inbound capacity, which means having sellable product available sooner for direct orders and replenishment of our stores,” Sato said. “For outbound efficiencies, new technology will enable the picking and preparation of packages that increase speed and accuracy of the order and cost savings on freight.”
Duluth will also make technology investments in customer data to action marketing campaigns, enhancing the customer experience on website and mobile through progressive web app solutions, and shoring up the state of the company’s ERP system to current generation.
“All of those things will help us make better, more informed and better decisions as we move forward, which we believe will continue to drive not only the top line but will continue to drive improved inventory decisions that translate to greater margins and greater inventory turns,” Sato told analysts.
Duluth’s net sales increased 5.8% to $270.8 million in it Q4, up from $256 million in the prior-year’s Q4. However, women’s apparel net sales decreased 3.7%, primarily attributed to inventory delays resulting in gaps in woven tops.
“We estimate that roughly $15 million to $20 million of demand exceeded our supply in the fourth quarter alone, as inventory levels were running below last year by as much as 25%,” Loretta said. “Although inventory flow remains slower than normal, which we expect will impact sales in the first half of 2022, we are beginning to see some early signs that gives us confidence that supply chain congestion will improve by the second half of the year.”