WEBVTT - Creating an Open Supply-Chain Network for Retail

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<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Bloomberg

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<v Speaker 1>Quick Takes Tim Stinovic on Bloomberg Radio. We are talking

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<v Speaker 1>a lot about retail today, an area that went through

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<v Speaker 1>a lot of disruption, innovation during the pandemic, e commerce

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<v Speaker 1>reigning supreme and retail that we know Tim continues to

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<v Speaker 1>be faced with so many questions when it comes to

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<v Speaker 1>consumer demands, stresses over supply chains. Not easy being a retailer, No,

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<v Speaker 1>it's not. We've got a great voice on this in

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<v Speaker 1>the studio with us. To Shaker not Rajan, executive vice

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<v Speaker 1>president and Chief Supply Chain Officer for American Eagle. He's

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<v Speaker 1>with us in the Bloomberg Interactive Broker studio. Shaker, great

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<v Speaker 1>to have you with us. How are you? Thank you?

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<v Speaker 1>Like thanks, It's an honor to be here. Well, you know,

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<v Speaker 1>it's funny because Carol and I were talking just a

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<v Speaker 1>couple of minutes ago and we were thinking, Okay, what

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<v Speaker 1>have the last two and a half year has been

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<v Speaker 1>like for you? Basic cake for sure, well, um, chaotic

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<v Speaker 1>to see the least um. But you know, as American Eagle,

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<v Speaker 1>we're also very optimistic about the future because we wait, wait,

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<v Speaker 1>we're not gonna let you talk about the future. So

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<v Speaker 1>you joy, you joined American Eagle in so before the pandemic, right,

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<v Speaker 1>so you just get yourself settled, get everything set up, um,

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<v Speaker 1>and then the pandemic hits walk us through because it's

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<v Speaker 1>really been telling and I think informative, like what we've

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<v Speaker 1>learned from companies about the pandemic and maybe have that

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<v Speaker 1>impacted strategy for you guys. Yeah, well, like before even

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<v Speaker 1>before like pandemic hit us, we started envisioning the future

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<v Speaker 1>of the supply chain, how it's going to look very

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<v Speaker 1>different and so, um, if you look at where there

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<v Speaker 1>was a lot of cost escalation in you know, doing business,

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<v Speaker 1>it was really like from what I call the middle

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<v Speaker 1>mind the time the product enters into the country to

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<v Speaker 1>the time it actually gets to the doorstep. And that

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<v Speaker 1>was the fastest growing expense that we saw. And it's

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<v Speaker 1>across the board, like every industry, every retailer says that

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<v Speaker 1>the shipping expenses, transportation, transportation expenses. They were like, we're

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<v Speaker 1>not leveraged, and so we wanted to change the game.

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<v Speaker 1>We wanted to change the game, and we started thinking

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<v Speaker 1>about what would the disruption look like because we wanted

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<v Speaker 1>to disrupt ourselves before the industry disrupts us. Right, So

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<v Speaker 1>we started laying out a strategy, and that strategy was

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<v Speaker 1>all about getting the inventory closer to the end consumption

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<v Speaker 1>point and doing it in an omni channel fashion so

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<v Speaker 1>that you could you could maximize the value of the inventory,

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<v Speaker 1>reduce the transportation cost and the miles traveled. Hold on,

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<v Speaker 1>how do you how do you get the inventory closer

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<v Speaker 1>to the place of consumption, especially when this stuff is

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<v Speaker 1>created half a world away. Yes, so what we're talking

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<v Speaker 1>about is once it actually comes into the country, the

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<v Speaker 1>time basically, like let's take an example, right, like if

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<v Speaker 1>a pair of American Egan jeans was actually sold in

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<v Speaker 1>a store, um, it would be sold on a Sunday,

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<v Speaker 1>read on a Monday. The allocations would happen on a Wednesday,

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<v Speaker 1>like you would actually pick back on a Thursday. It

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<v Speaker 1>would show up like that, the trucks would leave on

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<v Speaker 1>the following Monday. It would show up in the in

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<v Speaker 1>the customers in the stores like two weeks later pretty much.

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<v Speaker 1>And so the time it takes was about like fourteen

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<v Speaker 1>days the worst case scenario. And so what we wanted

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<v Speaker 1>to do is how do we get to daily replenishment

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<v Speaker 1>of the stores. And also, like you know, when you

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<v Speaker 1>when you allocated the store, the product in the store

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<v Speaker 1>is like literally like two and a half days away, right,

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<v Speaker 1>So that like that compression of the time was what

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<v Speaker 1>we were trying to aim for. And so what we

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<v Speaker 1>did is basically we created a lot of decentralized locations.

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<v Speaker 1>Instead of shipping from halfway across the country, we started

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<v Speaker 1>putting distribution centers closer to where people live, started holding

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<v Speaker 1>the inventory like the Amazon model, in terms of absolutely

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<v Speaker 1>like the Amazon model. And when we presented this, people

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<v Speaker 1>thought I was crazy because it works for like you know,

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<v Speaker 1>diapers and and soda, not necessarily for fashion because fashion

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<v Speaker 1>changes pretty fast. And so what we had to do

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<v Speaker 1>was really power our systems with a lot of advanced

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<v Speaker 1>like thinking from a perspective, and that drove the inventory

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<v Speaker 1>decisioning and the sciences associated with it, which really helped

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<v Speaker 1>us like transformable. So basically, all of a sudden, Tims

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<v Speaker 1>really into yoga pants and they're like, you know, he

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<v Speaker 1>lives in New York. You get kind of a spike there,

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<v Speaker 1>you know, and others, right, and the data says, we

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<v Speaker 1>gotta get more yoga pants to New York. Yes, it's

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<v Speaker 1>as simple as that. It's as simple as that, and

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<v Speaker 1>like you know, creating a responsive supply chain. And when

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<v Speaker 1>the pandemic hit us, it was also a rude awakening

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<v Speaker 1>that like you know, the distribution centers were very fragile,

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<v Speaker 1>Like you know, we have two distribution centers, one in

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<v Speaker 1>Ottawa and one in Hazelton, and the population was it

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<v Speaker 1>was effected there and so we were we were at

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<v Speaker 1>the risk of actually like shutting down the business because

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<v Speaker 1>if those two facilities go down and the stores are

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<v Speaker 1>not available, then you run the risk of actually not

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<v Speaker 1>having any any of these operations at all. You don't

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<v Speaker 1>have the flexibility and moved to something like one too.

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<v Speaker 1>That's it. That's exactly the point. So even the increased overhead,

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<v Speaker 1>it's only about thirty seconds and we'll come back and

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<v Speaker 1>ducks some more. But even the increased overhead of having

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<v Speaker 1>more logistics centers, that makes effort by having them closer

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<v Speaker 1>to where the demand is. Yeah, so what and then

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<v Speaker 1>we'll come back. Yes, what we did was actually addressed

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<v Speaker 1>that increased overhead. So we went into a sharing model

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<v Speaker 1>instead of us owning the facilities. We started like doing

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<v Speaker 1>that with like fifteen other brands, fifty other brands, and

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<v Speaker 1>that helped us like actually make the supply chain much

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<v Speaker 1>more variabilized. Take us back to March, tell me that,

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<v Speaker 1>like how stressed for you guys? What were the discussions

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<v Speaker 1>you were all having in the sas? Because I feel

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<v Speaker 1>like the financial crisis made CFOs crucial, right, because they

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<v Speaker 1>financially kept companies alive the pandemic. I felt like it

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<v Speaker 1>it made HR and supply chain people like so important

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<v Speaker 1>in getting companies through. Yes, so for the first like

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<v Speaker 1>I think, like for all companies, they started realizing the

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<v Speaker 1>importance of supply chain thanks to cod right primarily because

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<v Speaker 1>that became the heartbeat of everything which was happening. Everything

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<v Speaker 1>was around centered around like how do we think about

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<v Speaker 1>labor availability, safety of the associates, making sure that product

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<v Speaker 1>is available. And when COVID happened, everything shut down. From

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<v Speaker 1>a store distribution perspective, e commerce was the only way

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<v Speaker 1>people could consume, and distribution centers were the only arm

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<v Speaker 1>which we actually serviced the customers, right, and so we

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<v Speaker 1>were it was very very stressful. It was like very

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<v Speaker 1>painful in fact, to actually like fourlow some of our

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<v Speaker 1>like store associates, um and like you know, continue to

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<v Speaker 1>have these operations. And we were all always talking to

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<v Speaker 1>the state executives and basically the county officials saying, why

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<v Speaker 1>are we basically in essential business? Why do we need

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<v Speaker 1>to keep running this? And the safety protocols we put

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<v Speaker 1>in the first thing we did, like Nancy and and

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<v Speaker 1>like we're super proud about what we're trying to do.

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<v Speaker 1>What we did is we put safety ahead of everything else.

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<v Speaker 1>We bought state of art equipment, Like in our distribution centers,

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<v Speaker 1>we had nurses on duty, we had doctors on duty.

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<v Speaker 1>We like you know, we were following all of the

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<v Speaker 1>CDC guidelines just to make sure that you know, the

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<v Speaker 1>distribution centers were operating. But at the same time, you know,

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<v Speaker 1>when when you when you have a you know, a

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<v Speaker 1>disaster of Sarge, you focus on what is most relevant,

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<v Speaker 1>which was creating this distributed model. Yeah, it's really fascinate.

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<v Speaker 1>We're gonna continue talking about because I love how you

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<v Speaker 1>guys were tacking tackling really in terms of the supply

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<v Speaker 1>chain ahead of the pandemic and how it's held over.

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<v Speaker 1>We're gonna come back to Shaker and not Ragin of

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<v Speaker 1>American Eagle. This is Bloomberg Radio shaker and not Ragin

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<v Speaker 1>is with US executive vice president, chief supply chain Officer

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<v Speaker 1>American Eagle. I gotta say that conversations we're having, it's

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<v Speaker 1>so great to have it. Never turn the mics off. Okay,

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<v Speaker 1>well know we'll talk, We'll have some we'll have it.

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<v Speaker 1>We'll continue to over a good chat. Yeah, exactly, talk

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<v Speaker 1>to us more about you know, as you said, you

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<v Speaker 1>guys are doing more distribution centers, more closer to where

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<v Speaker 1>people are buying, and that's changing. How much of that

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<v Speaker 1>has to do with carbon footprint, Well, it has everything

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<v Speaker 1>to do with regenerative networks, because I think, like people

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<v Speaker 1>talk about sustainability, sustainability just acknowledges the fact that we

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<v Speaker 1>have screwed up the world, right, and so we're saying

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<v Speaker 1>that we want to be carbon neutral. But what we

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<v Speaker 1>intend to do with this new model that we're building

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<v Speaker 1>out is to create a regenerative business, which means that

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<v Speaker 1>giving it back, giving back to the society. So as

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<v Speaker 1>an example example, so when we built out this distribution

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<v Speaker 1>network that we did, American Eagle grew the business by right,

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<v Speaker 1>but we reduced the number of parcels which are actually

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<v Speaker 1>going to the doorstep by and it was less tough

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<v Speaker 1>because exactly because instead of having stores like you know,

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<v Speaker 1>do all of your shipments, we were consolidating them into

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<v Speaker 1>fewer locations which could do the shipments. And so the

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<v Speaker 1>number of packages which are ending up at the doorstep

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<v Speaker 1>were much much lesser than what it was, though the

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<v Speaker 1>volume grew. The second thing, it actually reduced the number

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<v Speaker 1>of miles because like, you're that much closer to the

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<v Speaker 1>end consumer. So we reduced the number of parcel miles

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<v Speaker 1>by two billion miles. That's a number. What percentage is that, Well,

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<v Speaker 1>it sounds like a lot, but you know what I mean. Like,

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<v Speaker 1>so for for for us itself, it was about right.

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<v Speaker 1>And and then let's take like, you know, the cost

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<v Speaker 1>of doing business, because we were sharing our network with

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<v Speaker 1>other brands through this, through the consolidations sharing economy models,

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<v Speaker 1>so the cost was much lower. So we were able

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<v Speaker 1>to deliver packages a cheaper and a day and a

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<v Speaker 1>half faster, right, So it's better for the planet, it's

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<v Speaker 1>better for profits. It's better basically because you're tapping into

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<v Speaker 1>the local economy, right, So it was better all the

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<v Speaker 1>way around. And so we thought this is a fundamentally

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<v Speaker 1>a good business model that we should now begin to

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<v Speaker 1>scale and democratize access for everyone. And and that is

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<v Speaker 1>the mission of this company. And to just to give

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<v Speaker 1>you some context, I come from and I'm proud to

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<v Speaker 1>say that on radio that I come from slums in India.

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<v Speaker 1>But sis to funerals, paying for funerals or paying for education,

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<v Speaker 1>paying for electricity was a big thing. And all we

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<v Speaker 1>know is how to share and supply chains is anything

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<v Speaker 1>but going to be an abundant resource going forward. We

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<v Speaker 1>don't have enough people. You know, if the number of

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<v Speaker 1>parcels just doubled in the next six years, went from

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<v Speaker 1>twenty billion parcels to forty billion parcels, you would need

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<v Speaker 1>to have eight hundred and twenty three fulfillment centers, five

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<v Speaker 1>thousand distribution centers, five thousand, eight thousand, four hundred delivery hubs,

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<v Speaker 1>a million trucks over the road, and about like seven

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<v Speaker 1>and fifty thousand delivery vans, which accounts to sixteen million

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<v Speaker 1>more people that need to get employed. And US is

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<v Speaker 1>only growing at like three hundred thousand a year. So

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<v Speaker 1>where where do we find all that people? Like? It's

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<v Speaker 1>going to the price escalation is here to stay. From

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<v Speaker 1>a supply chain perspective, right, and so so that and

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<v Speaker 1>so the notion of sharing opens up capacity everywhere in

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<v Speaker 1>the network. So you think sharing with you and other companies, like,

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<v Speaker 1>why wouldn't we all just tap into it? Exactly the

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<v Speaker 1>business tim we we're talking robots yesterday, and I'm wondering

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<v Speaker 1>how you've automated parts of the supply chain or parts

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<v Speaker 1>of logistics in order to make up for that. Lots

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<v Speaker 1>of people that we've seen here, lots of employees obviously,

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<v Speaker 1>like you know, robotics is an augmentation to people's abilities

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<v Speaker 1>to perform, right, and so, but that's not going to

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<v Speaker 1>be the full answer. The answer lies like think about,

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<v Speaker 1>like what would the world be if every company did

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<v Speaker 1>the same thing that American Eagle did. American Eagle, like

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<v Speaker 1>still has two massive distribution centers one million square feet,

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<v Speaker 1>one in Ottawa and one in Kansas City. We run

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<v Speaker 1>that facility at seventy percent utilization for forty eight weeks

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<v Speaker 1>in the year, right, we need the full capacity for

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<v Speaker 1>four weeks. And so that's the case with every distribution

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<v Speaker 1>center in every industrial park, right, They're only built and

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<v Speaker 1>designed for the peak. So if everyone started sharing, that

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<v Speaker 1>becomes so you reset the base of how you use

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<v Speaker 1>these facilities, the people that you're using, and how you

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<v Speaker 1>could efficiently like run these supply changes. So I'm assuming

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<v Speaker 1>you guys that American Eagle are reaching out to others

0:12:24.200 --> 0:12:27.040
<v Speaker 1>to say, come on board with this, Yes, tell us

0:12:27.080 --> 0:12:29.559
<v Speaker 1>about who you're talking with, what kind of interactions and

0:12:29.640 --> 0:12:32.400
<v Speaker 1>our people. Is its small businesses that are saying as

0:12:32.520 --> 0:12:34.240
<v Speaker 1>or is it larger companies are saying, yeah, we want

0:12:34.240 --> 0:12:36.800
<v Speaker 1>to partner with you. Well, like we are very like,

0:12:37.120 --> 0:12:41.040
<v Speaker 1>you know, counter to what you know people thought. We

0:12:41.120 --> 0:12:45.160
<v Speaker 1>are proving that collaboration is already at play and is

0:12:45.160 --> 0:12:47.679
<v Speaker 1>a revolution which is happening right now. So we've signed

0:12:47.760 --> 0:12:52.080
<v Speaker 1>up nine brands since we've acquired, So the total number

0:12:52.120 --> 0:12:54.040
<v Speaker 1>of brands that we have on board is about like

0:12:54.200 --> 0:12:56.480
<v Speaker 1>forty brands. And but we have like an extended partner

0:12:56.480 --> 0:13:00.000
<v Speaker 1>network about seventy people. Seventy partners on the network providing

0:13:00.080 --> 0:13:04.360
<v Speaker 1>all kinds of services transportation services, warehousing services, um and

0:13:04.480 --> 0:13:08.040
<v Speaker 1>basically brands accessing all of their capacity today. And some

0:13:08.120 --> 0:13:14.080
<v Speaker 1>of these brands include Fanatics, Steve Madden's sacks, um uh

0:13:14.200 --> 0:13:17.400
<v Speaker 1>we just start to the sax yeah yeah, so, and

0:13:17.400 --> 0:13:19.600
<v Speaker 1>and a lot more brands to come, and some of

0:13:19.640 --> 0:13:24.400
<v Speaker 1>these brands are actually competitive in nature. Sagar asked, We've

0:13:24.440 --> 0:13:26.040
<v Speaker 1>only got like about a couple of minutes left and

0:13:26.040 --> 0:13:28.880
<v Speaker 1>then we've got to wrap up, unfortunately. But so Tim

0:13:28.920 --> 0:13:30.920
<v Speaker 1>and I talk all the time about supply chains, and

0:13:31.040 --> 0:13:32.880
<v Speaker 1>you know, you know the story of the last year

0:13:32.880 --> 0:13:34.840
<v Speaker 1>and a half or two years, it's just been really

0:13:35.120 --> 0:13:40.560
<v Speaker 1>stressed supply chains. Are they easing? It is easy in

0:13:40.679 --> 0:13:44.320
<v Speaker 1>one place, which is inbound, like you know, the coming in,

0:13:44.679 --> 0:13:47.679
<v Speaker 1>the stuff coming in. Basically, like you know, the spot

0:13:47.720 --> 0:13:50.640
<v Speaker 1>market is like it's not no longer like twenty tho

0:13:50.880 --> 0:13:54.400
<v Speaker 1>dollars a container, it's like seven a container. It has

0:13:54.400 --> 0:13:57.080
<v Speaker 1>gone down that it has gone down that much. And

0:13:57.280 --> 0:14:01.280
<v Speaker 1>but that the a little bit of chink in the

0:14:01.360 --> 0:14:04.320
<v Speaker 1>armor there is that a lot of people have actually

0:14:04.400 --> 0:14:09.079
<v Speaker 1>contractually signed um contracts with all of these ocean carriers

0:14:09.320 --> 0:14:12.400
<v Speaker 1>at a fixed rate, right, So now they're in a

0:14:12.480 --> 0:14:14.120
<v Speaker 1>little bit of a you know a little bit of

0:14:14.120 --> 0:14:17.319
<v Speaker 1>a yeah exactly, So how do you how do you

0:14:17.440 --> 0:14:20.160
<v Speaker 1>kind of like manage that balance of using a spot

0:14:20.240 --> 0:14:23.400
<v Speaker 1>market versus the contractually obligated volume. So I think, like

0:14:23.440 --> 0:14:25.280
<v Speaker 1>you know, that side of it is going to ease

0:14:25.360 --> 0:14:29.040
<v Speaker 1>and ease into the into the next Yeah, but I

0:14:29.080 --> 0:14:32.480
<v Speaker 1>think the biggest inflation is going to still come from

0:14:32.480 --> 0:14:35.400
<v Speaker 1>the time it hits the country for the time basically

0:14:35.400 --> 0:14:37.240
<v Speaker 1>it is delivered to the doors. Is that because of

0:14:37.240 --> 0:14:39.600
<v Speaker 1>fuel just thirty seconds? That fuel? Is it employee cost?

0:14:39.640 --> 0:14:42.080
<v Speaker 1>What is it? It's the fuel, It's the employee cost.

0:14:42.480 --> 0:14:45.680
<v Speaker 1>And also the growing demand of e commerce. E commerce

0:14:45.720 --> 0:14:48.240
<v Speaker 1>is a full service model. You used to go to

0:14:48.280 --> 0:14:50.560
<v Speaker 1>the store and basically pick up fifty items and come back.

0:14:50.880 --> 0:14:53.640
<v Speaker 1>Now that basket is getting like fragmented between like five

0:14:53.680 --> 0:14:56.560
<v Speaker 1>brands and fifty boxes are showing up at your doorstep.

0:14:56.600 --> 0:15:00.200
<v Speaker 1>That is not going anyh people are sending it back.

0:15:00.360 --> 0:15:03.360
<v Speaker 1>You know, they're returning. That's expensive. Yeah, I'm a big

0:15:03.400 --> 0:15:05.600
<v Speaker 1>like I order a lot and then I returned. I

0:15:05.680 --> 0:15:07.560
<v Speaker 1>like omni channel work and drop it at the store

0:15:07.560 --> 0:15:09.760
<v Speaker 1>then to return so it don't to repackage it um

0:15:09.760 --> 0:15:13.440
<v Speaker 1>come back soon. This is really informative and smart. Shaker

0:15:13.680 --> 0:15:15.840
<v Speaker 1>not rage. And he is executive vice president, chief supply

0:15:15.920 --> 0:15:18.760
<v Speaker 1>chain Officer to American Eagle worked at Target, worked at Walmart,

0:15:18.800 --> 0:15:21.040
<v Speaker 1>work to Disney. So next time we'll talk about that.

0:15:21.680 --> 0:15:23.320
<v Speaker 1>I delight to have him for Tim Sanovic and the

0:15:23.360 --> 0:15:25.840
<v Speaker 1>Houl Bloomberg Business Week team. I'm Carol Master, and this

0:15:26.000 --> 0:15:26.600
<v Speaker 1>is Bloomberg