Creating an Open Supply-Chain Network for Retail

the studio with us. To Shaker not Rajan, executive vice president and Chief Supply Chain Officer for American Eagle. He's with us in the Bloomberg Interactive Broker studio. Shaker, great to have you with us. How are you? Thank you? Like thanks, It's an honor to be here. Well, you know, it's funny because Carol and I were talking just a couple of minutes ago and we were thinking, Okay, what have the last two and a half year has been like for you? Basic cake for sure, well, um, chaotic

to see the least um. But you know, as American Eagle, we're also very optimistic about the future because we wait, wait, we're not gonna let you talk about the future. So you joy, you joined American Eagle in so before the pandemic, right, so you just get yourself settled, get everything set up, um, and then the pandemic hits walk us through because it's really been telling and I think informative, like what we've learned from companies about the pandemic and maybe have that

impacted strategy for you guys. Yeah, well, like before even before like pandemic hit us, we started envisioning the future of the supply chain, how it's going to look very different and so, um, if you look at where there was a lot of cost escalation in you know, doing business, it was really like from what I call the middle mind the time the product enters into the country to the time it actually gets to the doorstep. And that

was the fastest growing expense that we saw. And it's across the board, like every industry, every retailer says that the shipping expenses, transportation, transportation expenses. They were like, we're not leveraged, and so we wanted to change the game. We wanted to change the game, and we started thinking about what would the disruption look like because we wanted

to disrupt ourselves before the industry disrupts us. Right, So we started laying out a strategy, and that strategy was all about getting the inventory closer to the end consumption point and doing it in an omni channel fashion so that you could you could maximize the value of the inventory, reduce the transportation cost and the miles traveled. Hold on, how do you how do you get the inventory closer to the place of consumption, especially when this stuff is

created half a world away. Yes, so what we're talking about is once it actually comes into the country, the time basically, like let's take an example, right, like if a pair of American Egan jeans was actually sold in a store, um, it would be sold on a Sunday, read on a Monday. The allocations would happen on a Wednesday, like you would actually pick back on a Thursday. It would show up like that, the trucks would leave on

the following Monday. It would show up in the in the customers in the stores like two weeks later pretty much. And so the time it takes was about like fourteen days the worst case scenario. And so what we wanted to do is how do we get to daily replenishment of the stores. And also, like you know, when you when you allocated the store, the product in the store is like literally like two and a half days away, right, So that like that compression of the time was what

we were trying to aim for. And so what we did is basically we created a lot of decentralized locations. Instead of shipping from halfway across the country, we started putting distribution centers closer to where people live, started holding the inventory like the Amazon model, in terms of absolutely like the Amazon model. And when we presented this, people thought I was crazy because it works for like you know, diapers and and soda, not necessarily for fashion because fashion

changes pretty fast. And so what we had to do was really power our systems with a lot of advanced like thinking from a perspective, and that drove the inventory decisioning and the sciences associated with it, which really helped us like transformable. So basically, all of a sudden, Tims really into yoga pants and they're like, you know, he lives in New York. You get kind of a spike there, you know, and others, right, and the data says, we gotta get more yoga pants to New York. Yes, it's

as simple as that. It's as simple as that, and

like you know, creating a responsive supply chain. And when the pandemic hit us, it was also a rude awakening that like you know, the distribution centers were very fragile, Like you know, we have two distribution centers, one in Ottawa and one in Hazelton, and the population was it was effected there and so we were we were at the risk of actually like shutting down the business because if those two facilities go down and the stores are not available, then you run the risk of actually not

having any any of these operations at all. You don't have the flexibility and moved to something like one too. That's it. That's exactly the point. So even the increased overhead, it's only about thirty seconds and we'll come back and ducks some more. But even the increased overhead of having more logistics centers, that makes effort by having them closer to where the demand is. Yeah, so what and then we'll come back. Yes, what we did was actually addressed

that increased overhead. So we went into a sharing model instead of us owning the facilities. We started like doing that with like fifteen other brands, fifty other brands, and that helped us like actually make the supply chain much more variabilized. Take us back to March, tell me that, like how stressed for you guys? What were the discussions you were all having in the sas? Because I feel like the financial crisis made CFOs crucial, right, because they

financially kept companies alive the pandemic. I felt like it it made HR and supply chain people like so important in getting companies through. Yes, so for the first like I think, like for all companies, they started realizing the importance of supply chain thanks to cod right primarily because that became the heartbeat of everything which was happening. Everything was around centered around like how do we think about labor availability, safety of the associates, making sure that product

is available. And when COVID happened, everything shut down. From a store distribution perspective, e commerce was the only way people could consume, and distribution centers were the only arm which we actually serviced the customers, right, and so we were it was very very stressful. It was like very painful in fact, to actually like fourlow some of our like store associates, um and like you know, continue to

have these operations. And we were all always talking to the state executives and basically the county officials saying, why are we basically in essential business? Why do we need to keep running this? And the safety protocols we put in the first thing we did, like Nancy and and like we're super proud about what we're trying to do. What we did is we put safety ahead of everything else.

We bought state of art equipment, Like in our distribution centers, we had nurses on duty, we had doctors on duty. We like you know, we were following all of the CDC guidelines just to make sure that you know, the distribution centers were operating. But at the same time, you know, when when you when you have a you know, a disaster of Sarge, you focus on what is most relevant, which was creating this distributed model. Yeah, it's really fascinate.

We're gonna continue talking about because I love how you guys were tacking tackling really in terms of the supply chain ahead of the pandemic and how it's held over. We're gonna come back to Shaker and not Ragin of American Eagle. This is Bloomberg Radio shaker and not Ragin is with US executive vice president, chief supply chain Officer American Eagle. I gotta say that conversations we're having, it's

so great to have it. Never turn the mics off. Okay, well know we'll talk, We'll have some we'll have it. We'll continue to over a good chat. Yeah, exactly, talk to us more about you know, as you said, you guys are doing more distribution centers, more closer to where

people are buying, and that's changing. How much of that has to do with carbon footprint, Well, it has everything to do with regenerative networks, because I think, like people talk about sustainability, sustainability just acknowledges the fact that we have screwed up the world, right, and so we're saying that we want to be carbon neutral. But what we intend to do with this new model that we're building out is to create a regenerative business, which means that

giving it back, giving back to the society. So as an example example, so when we built out this distribution network that we did, American Eagle grew the business by right, but we reduced the number of parcels which are actually going to the doorstep by and it was less tough because exactly because instead of having stores like you know, do all of your shipments, we were consolidating them into

fewer locations which could do the shipments. And so the number of packages which are ending up at the doorstep were much much lesser than what it was, though the volume grew. The second thing, it actually reduced the number of miles because like, you're that much closer to the end consumer. So we reduced the number of parcel miles by two billion miles. That's a number. What percentage is that, Well,

it sounds like a lot, but you know what I mean. Like, so for for for us itself, it was about right. And and then let's take like, you know, the cost of doing business, because we were sharing our network with other brands through this, through the consolidations sharing economy models, so the cost was much lower. So we were able to deliver packages a cheaper and a day and a half faster, right, So it's better for the planet, it's

better for profits. It's better basically because you're tapping into the local economy, right, So it was better all the way around. And so we thought this is a fundamentally a good business model that we should now begin to scale and democratize access for everyone. And and that is the mission of this company. And to just to give you some context, I come from and I'm proud to say that on radio that I come from slums in India. But sis to funerals, paying for funerals or paying for education,

paying for electricity was a big thing. And all we know is how to share and supply chains is anything but going to be an abundant resource going forward. We

don't have enough people. You know, if the number of parcels just doubled in the next six years, went from twenty billion parcels to forty billion parcels, you would need to have eight hundred and twenty three fulfillment centers, five thousand distribution centers, five thousand, eight thousand, four hundred delivery hubs, a million trucks over the road, and about like seven and fifty thousand delivery vans, which accounts to sixteen million more people that need to get employed. And US is

only growing at like three hundred thousand a year. So where where do we find all that people? Like? It's going to the price escalation is here to stay. From a supply chain perspective, right, and so so that and so the notion of sharing opens up capacity everywhere in the network. So you think sharing with you and other companies, like,

why wouldn't we all just tap into it? Exactly the business tim we we're talking robots yesterday, and I'm wondering how you've automated parts of the supply chain or parts of logistics in order to make up for that. Lots of people that we've seen here, lots of employees obviously, like you know, robotics is an augmentation to people's abilities to perform, right, and so, but that's not going to be the full answer. The answer lies like think about, like what would the world be if every company did

the same thing that American Eagle did. American Eagle, like still has two massive distribution centers one million square feet, one in Ottawa and one in Kansas City. We run that facility at seventy percent utilization for forty eight weeks in the year, right, we need the full capacity for four weeks. And so that's the case with every distribution center in every industrial park, right, They're only built and

designed for the peak. So if everyone started sharing, that becomes so you reset the base of how you use these facilities, the people that you're using, and how you could efficiently like run these supply changes. So I'm assuming you guys that American Eagle are reaching out to others to say, come on board with this, Yes, tell us about who you're talking with, what kind of interactions and our people. Is its small businesses that are saying as or is it larger companies are saying, yeah, we want

to partner with you. Well, like we are very like, you know, counter to what you know people thought. We are proving that collaboration is already at play and is a revolution which is happening right now. So we've signed up nine brands since we've acquired, So the total number of brands that we have on board is about like forty brands. And but we have like an extended partner

network about seventy people. Seventy partners on the network providing all kinds of services transportation services, warehousing services, um and basically brands accessing all of their capacity today. And some of these brands include Fanatics, Steve Madden's sacks, um uh we just start to the sax yeah yeah, so, and and a lot more brands to come, and some of these brands are actually competitive in nature. Sagar asked, We've only got like about a couple of minutes left and

then we've got to wrap up, unfortunately. But so Tim and I talk all the time about supply chains, and you know, you know the story of the last year and a half or two years, it's just been really stressed supply chains. Are they easing? It is easy in one place, which is inbound, like you know, the coming in, the stuff coming in. Basically, like you know, the spot market is like it's not no longer like twenty tho dollars a container, it's like seven a container. It has

gone down that it has gone down that much. And but that the a little bit of chink in the armor there is that a lot of people have actually contractually signed um contracts with all of these ocean carriers at a fixed rate, right, So now they're in a little bit of a you know a little bit of a yeah exactly, So how do you how do you kind of like manage that balance of using a spot

market versus the contractually obligated volume. So I think, like you know, that side of it is going to ease and ease into the into the next Yeah, but I think the biggest inflation is going to still come from the time it hits the country for the time basically it is delivered to the doors. Is that because of fuel just thirty seconds? That fuel? Is it employee cost? What is it? It's the fuel, It's the employee cost. And also the growing demand of e commerce. E commerce

is a full service model. You used to go to the store and basically pick up fifty items and come back. Now that basket is getting like fragmented between like five brands and fifty boxes are showing up at your doorstep. That is not going anyh people are sending it back. You know, they're returning. That's expensive. Yeah, I'm a big like I order a lot and then I returned. I like omni channel work and drop it at the store then to return so it don't to repackage it um

come back soon. This is really informative and smart. Shaker not rage. And he is executive vice president, chief supply chain Officer to American Eagle worked at Target, worked at Walmart, work to Disney. So next time we'll talk about that. I delight to have him for Tim Sanovic and the Houl Bloomberg Business Week team. I'm Carol Master, and this is Bloomberg