Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. We are talking
Speaker 1: a lot about retail today, an area that went through
Speaker 1: a lot of disruption, innovation during the pandemic, e commerce
Speaker 1: reigning supreme and retail that we know Tim continues to
Speaker 1: be faced with so many questions when it comes to
Speaker 1: consumer demands, stresses over supply chains. Not easy being a retailer, No,
Speaker 1: it's not. We've got a great voice on this in
Speaker 1: the studio with us. To Shaker not Rajan, executive vice
Speaker 1: president and Chief Supply Chain Officer for American Eagle. He's
Speaker 1: with us in the Bloomberg Interactive Broker studio. Shaker, great
Speaker 1: to have you with us. How are you? Thank you?
Speaker 1: Like thanks, It's an honor to be here. Well, you know,
Speaker 1: it's funny because Carol and I were talking just a
Speaker 1: couple of minutes ago and we were thinking, Okay, what
Speaker 1: have the last two and a half year has been
Speaker 1: like for you? Basic cake for sure, well, um, chaotic
Speaker 1: to see the least um. But you know, as American Eagle,
Speaker 1: we're also very optimistic about the future because we wait, wait,
Speaker 1: we're not gonna let you talk about the future. So
Speaker 1: you joy, you joined American Eagle in so before the pandemic, right,
Speaker 1: so you just get yourself settled, get everything set up, um,
Speaker 1: and then the pandemic hits walk us through because it's
Speaker 1: really been telling and I think informative, like what we've
Speaker 1: learned from companies about the pandemic and maybe have that
Speaker 1: impacted strategy for you guys. Yeah, well, like before even
Speaker 1: before like pandemic hit us, we started envisioning the future
Speaker 1: of the supply chain, how it's going to look very
Speaker 1: different and so, um, if you look at where there
Speaker 1: was a lot of cost escalation in you know, doing business,
Speaker 1: it was really like from what I call the middle
Speaker 1: mind the time the product enters into the country to
Speaker 1: the time it actually gets to the doorstep. And that
Speaker 1: was the fastest growing expense that we saw. And it's
Speaker 1: across the board, like every industry, every retailer says that
Speaker 1: the shipping expenses, transportation, transportation expenses. They were like, we're
Speaker 1: not leveraged, and so we wanted to change the game.
Speaker 1: We wanted to change the game, and we started thinking
Speaker 1: about what would the disruption look like because we wanted
Speaker 1: to disrupt ourselves before the industry disrupts us. Right, So
Speaker 1: we started laying out a strategy, and that strategy was
Speaker 1: all about getting the inventory closer to the end consumption
Speaker 1: point and doing it in an omni channel fashion so
Speaker 1: that you could you could maximize the value of the inventory,
Speaker 1: reduce the transportation cost and the miles traveled. Hold on,
Speaker 1: how do you how do you get the inventory closer
Speaker 1: to the place of consumption, especially when this stuff is
Speaker 1: created half a world away. Yes, so what we're talking
Speaker 1: about is once it actually comes into the country, the
Speaker 1: time basically, like let's take an example, right, like if
Speaker 1: a pair of American Egan jeans was actually sold in
Speaker 1: a store, um, it would be sold on a Sunday,
Speaker 1: read on a Monday. The allocations would happen on a Wednesday,
Speaker 1: like you would actually pick back on a Thursday. It
Speaker 1: would show up like that, the trucks would leave on
Speaker 1: the following Monday. It would show up in the in
Speaker 1: the customers in the stores like two weeks later pretty much.
Speaker 1: And so the time it takes was about like fourteen
Speaker 1: days the worst case scenario. And so what we wanted
Speaker 1: to do is how do we get to daily replenishment
Speaker 1: of the stores. And also, like you know, when you
Speaker 1: when you allocated the store, the product in the store
Speaker 1: is like literally like two and a half days away, right,
Speaker 1: So that like that compression of the time was what
Speaker 1: we were trying to aim for. And so what we
Speaker 1: did is basically we created a lot of decentralized locations.
Speaker 1: Instead of shipping from halfway across the country, we started
Speaker 1: putting distribution centers closer to where people live, started holding
Speaker 1: the inventory like the Amazon model, in terms of absolutely
Speaker 1: like the Amazon model. And when we presented this, people
Speaker 1: thought I was crazy because it works for like you know,
Speaker 1: diapers and and soda, not necessarily for fashion because fashion
Speaker 1: changes pretty fast. And so what we had to do
Speaker 1: was really power our systems with a lot of advanced
Speaker 1: like thinking from a perspective, and that drove the inventory
Speaker 1: decisioning and the sciences associated with it, which really helped
Speaker 1: us like transformable. So basically, all of a sudden, Tims
Speaker 1: really into yoga pants and they're like, you know, he
Speaker 1: lives in New York. You get kind of a spike there,
Speaker 1: you know, and others, right, and the data says, we
Speaker 1: gotta get more yoga pants to New York. Yes, it's
Speaker 1: as simple as that. It's as simple as that, and
Speaker 1: like you know, creating a responsive supply chain. And when
Speaker 1: the pandemic hit us, it was also a rude awakening
Speaker 1: that like you know, the distribution centers were very fragile,
Speaker 1: Like you know, we have two distribution centers, one in
Speaker 1: Ottawa and one in Hazelton, and the population was it
Speaker 1: was effected there and so we were we were at
Speaker 1: the risk of actually like shutting down the business because
Speaker 1: if those two facilities go down and the stores are
Speaker 1: not available, then you run the risk of actually not
Speaker 1: having any any of these operations at all. You don't
Speaker 1: have the flexibility and moved to something like one too.
Speaker 1: That's it. That's exactly the point. So even the increased overhead,
Speaker 1: it's only about thirty seconds and we'll come back and
Speaker 1: ducks some more. But even the increased overhead of having
Speaker 1: more logistics centers, that makes effort by having them closer
Speaker 1: to where the demand is. Yeah, so what and then
Speaker 1: we'll come back. Yes, what we did was actually addressed
Speaker 1: that increased overhead. So we went into a sharing model
Speaker 1: instead of us owning the facilities. We started like doing
Speaker 1: that with like fifteen other brands, fifty other brands, and
Speaker 1: that helped us like actually make the supply chain much
Speaker 1: more variabilized. Take us back to March, tell me that,
Speaker 1: like how stressed for you guys? What were the discussions
Speaker 1: you were all having in the sas? Because I feel
Speaker 1: like the financial crisis made CFOs crucial, right, because they
Speaker 1: financially kept companies alive the pandemic. I felt like it
Speaker 1: it made HR and supply chain people like so important
Speaker 1: in getting companies through. Yes, so for the first like
Speaker 1: I think, like for all companies, they started realizing the
Speaker 1: importance of supply chain thanks to cod right primarily because
Speaker 1: that became the heartbeat of everything which was happening. Everything
Speaker 1: was around centered around like how do we think about
Speaker 1: labor availability, safety of the associates, making sure that product
Speaker 1: is available. And when COVID happened, everything shut down. From
Speaker 1: a store distribution perspective, e commerce was the only way
Speaker 1: people could consume, and distribution centers were the only arm
Speaker 1: which we actually serviced the customers, right, and so we
Speaker 1: were it was very very stressful. It was like very
Speaker 1: painful in fact, to actually like fourlow some of our
Speaker 1: like store associates, um and like you know, continue to
Speaker 1: have these operations. And we were all always talking to
Speaker 1: the state executives and basically the county officials saying, why
Speaker 1: are we basically in essential business? Why do we need
Speaker 1: to keep running this? And the safety protocols we put
Speaker 1: in the first thing we did, like Nancy and and
Speaker 1: like we're super proud about what we're trying to do.
Speaker 1: What we did is we put safety ahead of everything else.
Speaker 1: We bought state of art equipment, Like in our distribution centers,
Speaker 1: we had nurses on duty, we had doctors on duty.
Speaker 1: We like you know, we were following all of the
Speaker 1: CDC guidelines just to make sure that you know, the
Speaker 1: distribution centers were operating. But at the same time, you know,
Speaker 1: when when you when you have a you know, a
Speaker 1: disaster of Sarge, you focus on what is most relevant,
Speaker 1: which was creating this distributed model. Yeah, it's really fascinate.
Speaker 1: We're gonna continue talking about because I love how you
Speaker 1: guys were tacking tackling really in terms of the supply
Speaker 1: chain ahead of the pandemic and how it's held over.
Speaker 1: We're gonna come back to Shaker and not Ragin of
Speaker 1: American Eagle. This is Bloomberg Radio shaker and not Ragin
Speaker 1: is with US executive vice president, chief supply chain Officer
Speaker 1: American Eagle. I gotta say that conversations we're having, it's
Speaker 1: so great to have it. Never turn the mics off. Okay,
Speaker 1: well know we'll talk, We'll have some we'll have it.
Speaker 1: We'll continue to over a good chat. Yeah, exactly, talk
Speaker 1: to us more about you know, as you said, you
Speaker 1: guys are doing more distribution centers, more closer to where
Speaker 1: people are buying, and that's changing. How much of that
Speaker 1: has to do with carbon footprint, Well, it has everything
Speaker 1: to do with regenerative networks, because I think, like people
Speaker 1: talk about sustainability, sustainability just acknowledges the fact that we
Speaker 1: have screwed up the world, right, and so we're saying
Speaker 1: that we want to be carbon neutral. But what we
Speaker 1: intend to do with this new model that we're building
Speaker 1: out is to create a regenerative business, which means that
Speaker 1: giving it back, giving back to the society. So as
Speaker 1: an example example, so when we built out this distribution
Speaker 1: network that we did, American Eagle grew the business by right,
Speaker 1: but we reduced the number of parcels which are actually
Speaker 1: going to the doorstep by and it was less tough
Speaker 1: because exactly because instead of having stores like you know,
Speaker 1: do all of your shipments, we were consolidating them into
Speaker 1: fewer locations which could do the shipments. And so the
Speaker 1: number of packages which are ending up at the doorstep
Speaker 1: were much much lesser than what it was, though the
Speaker 1: volume grew. The second thing, it actually reduced the number
Speaker 1: of miles because like, you're that much closer to the
Speaker 1: end consumer. So we reduced the number of parcel miles
Speaker 1: by two billion miles. That's a number. What percentage is that, Well,
Speaker 1: it sounds like a lot, but you know what I mean. Like,
Speaker 1: so for for for us itself, it was about right.
Speaker 1: And and then let's take like, you know, the cost
Speaker 1: of doing business, because we were sharing our network with
Speaker 1: other brands through this, through the consolidations sharing economy models,
Speaker 1: so the cost was much lower. So we were able
Speaker 1: to deliver packages a cheaper and a day and a
Speaker 1: half faster, right, So it's better for the planet, it's
Speaker 1: better for profits. It's better basically because you're tapping into
Speaker 1: the local economy, right, So it was better all the
Speaker 1: way around. And so we thought this is a fundamentally
Speaker 1: a good business model that we should now begin to
Speaker 1: scale and democratize access for everyone. And and that is
Speaker 1: the mission of this company. And to just to give
Speaker 1: you some context, I come from and I'm proud to
Speaker 1: say that on radio that I come from slums in India.
Speaker 1: But sis to funerals, paying for funerals or paying for education,
Speaker 1: paying for electricity was a big thing. And all we
Speaker 1: know is how to share and supply chains is anything
Speaker 1: but going to be an abundant resource going forward. We
Speaker 1: don't have enough people. You know, if the number of
Speaker 1: parcels just doubled in the next six years, went from
Speaker 1: twenty billion parcels to forty billion parcels, you would need
Speaker 1: to have eight hundred and twenty three fulfillment centers, five
Speaker 1: thousand distribution centers, five thousand, eight thousand, four hundred delivery hubs,
Speaker 1: a million trucks over the road, and about like seven
Speaker 1: and fifty thousand delivery vans, which accounts to sixteen million
Speaker 1: more people that need to get employed. And US is
Speaker 1: only growing at like three hundred thousand a year. So
Speaker 1: where where do we find all that people? Like? It's
Speaker 1: going to the price escalation is here to stay. From
Speaker 1: a supply chain perspective, right, and so so that and
Speaker 1: so the notion of sharing opens up capacity everywhere in
Speaker 1: the network. So you think sharing with you and other companies, like,
Speaker 1: why wouldn't we all just tap into it? Exactly the
Speaker 1: business tim we we're talking robots yesterday, and I'm wondering
Speaker 1: how you've automated parts of the supply chain or parts
Speaker 1: of logistics in order to make up for that. Lots
Speaker 1: of people that we've seen here, lots of employees obviously,
Speaker 1: like you know, robotics is an augmentation to people's abilities
Speaker 1: to perform, right, and so, but that's not going to
Speaker 1: be the full answer. The answer lies like think about,
Speaker 1: like what would the world be if every company did
Speaker 1: the same thing that American Eagle did. American Eagle, like
Speaker 1: still has two massive distribution centers one million square feet,
Speaker 1: one in Ottawa and one in Kansas City. We run
Speaker 1: that facility at seventy percent utilization for forty eight weeks
Speaker 1: in the year, right, we need the full capacity for
Speaker 1: four weeks. And so that's the case with every distribution
Speaker 1: center in every industrial park, right, They're only built and
Speaker 1: designed for the peak. So if everyone started sharing, that
Speaker 1: becomes so you reset the base of how you use
Speaker 1: these facilities, the people that you're using, and how you
Speaker 1: could efficiently like run these supply changes. So I'm assuming
Speaker 1: you guys that American Eagle are reaching out to others
Speaker 1: to say, come on board with this, Yes, tell us
Speaker 1: about who you're talking with, what kind of interactions and
Speaker 1: our people. Is its small businesses that are saying as
Speaker 1: or is it larger companies are saying, yeah, we want
Speaker 1: to partner with you. Well, like we are very like,
Speaker 1: you know, counter to what you know people thought. We
Speaker 1: are proving that collaboration is already at play and is
Speaker 1: a revolution which is happening right now. So we've signed
Speaker 1: up nine brands since we've acquired, So the total number
Speaker 1: of brands that we have on board is about like
Speaker 1: forty brands. And but we have like an extended partner
Speaker 1: network about seventy people. Seventy partners on the network providing
Speaker 1: all kinds of services transportation services, warehousing services, um and
Speaker 1: basically brands accessing all of their capacity today. And some
Speaker 1: of these brands include Fanatics, Steve Madden's sacks, um uh
Speaker 1: we just start to the sax yeah yeah, so, and
Speaker 1: and a lot more brands to come, and some of
Speaker 1: these brands are actually competitive in nature. Sagar asked, We've
Speaker 1: only got like about a couple of minutes left and
Speaker 1: then we've got to wrap up, unfortunately. But so Tim
Speaker 1: and I talk all the time about supply chains, and
Speaker 1: you know, you know the story of the last year
Speaker 1: and a half or two years, it's just been really
Speaker 1: stressed supply chains. Are they easing? It is easy in
Speaker 1: one place, which is inbound, like you know, the coming in,
Speaker 1: the stuff coming in. Basically, like you know, the spot
Speaker 1: market is like it's not no longer like twenty tho
Speaker 1: dollars a container, it's like seven a container. It has
Speaker 1: gone down that it has gone down that much. And
Speaker 1: but that the a little bit of chink in the
Speaker 1: armor there is that a lot of people have actually
Speaker 1: contractually signed um contracts with all of these ocean carriers
Speaker 1: at a fixed rate, right, So now they're in a
Speaker 1: little bit of a you know a little bit of
Speaker 1: a yeah exactly, So how do you how do you
Speaker 1: kind of like manage that balance of using a spot
Speaker 1: market versus the contractually obligated volume. So I think, like
Speaker 1: you know, that side of it is going to ease
Speaker 1: and ease into the into the next Yeah, but I
Speaker 1: think the biggest inflation is going to still come from
Speaker 1: the time it hits the country for the time basically
Speaker 1: it is delivered to the doors. Is that because of
Speaker 1: fuel just thirty seconds? That fuel? Is it employee cost?
Speaker 1: What is it? It's the fuel, It's the employee cost.
Speaker 1: And also the growing demand of e commerce. E commerce
Speaker 1: is a full service model. You used to go to
Speaker 1: the store and basically pick up fifty items and come back.
Speaker 1: Now that basket is getting like fragmented between like five
Speaker 1: brands and fifty boxes are showing up at your doorstep.
Speaker 1: That is not going anyh people are sending it back.
Speaker 1: You know, they're returning. That's expensive. Yeah, I'm a big
Speaker 1: like I order a lot and then I returned. I
Speaker 1: like omni channel work and drop it at the store
Speaker 1: then to return so it don't to repackage it um
Speaker 1: come back soon. This is really informative and smart. Shaker
Speaker 1: not rage. And he is executive vice president, chief supply
Speaker 1: chain Officer to American Eagle worked at Target, worked at Walmart,
Speaker 1: work to Disney. So next time we'll talk about that.
Speaker 1: I delight to have him for Tim Sanovic and the
Speaker 1: Houl Bloomberg Business Week team. I'm Carol Master, and this
Speaker 1: is Bloomberg