Skip to main content

American Eagle’s Quiet Platforms Inks ‘Pioneering’ Real Estate Deal

Count real estate and finance as the next industries ready for disruption by American Eagle Outfitters’ logistics guru Shekar Natarajan

Natarajan, who serves as executive vice president and chief supply chain officer of AEO and president of its subsidiary Quiet Platforms, is shaking up the warehousing model with the announcement this week that Quiet will be employing a rent-as-a-percentage-of-revenue model as opposed to the standard base rent typically used in rental agreements.  

Quiet is linking with real estate brokerage JLL on the lease model, which has been used in retail deals but Natarajan called “pioneering” for industrial real estate

In retail, the model—referred to as percentage rent—involves a tenant paying based on their income and, in some cases, can also include a base monthly rent. 

“If you look at the industry, most of the warehousing, most of the distribution fulfillment model is about securing space, laying out capital for equipment and then kind of bringing in the demand,” Natarajan told Sourcing Journal. “So, the whole process for every company, if they’re managing their assets or owning their assets, they end up being lopsided on costs for an extended period of time.” 

Part of that is due to the fact that companies take up industrial real estate on the basis of what square footage they would need during their peaks. However, when the busy period is over, that excess capacity ends up simply sitting unused. 

Related Stories

JLL international director of industrial brokerage Kris Bjorson called it a “flexible transaction structure.”

“To support the company’s goal for a responsive, dynamic network we’re uncovering creative solutions across corporate subleases, retail to industrial conversations and even speculative industrial developments,” Bjorson said in a statement. 

The announcement with JLL aims to challenge the traditional fixed-cost model used in logistics, while also shifting the idea of what defines a unit of cost. Natarajan used the examples of Uber and streaming services. 

“Everything is pay as you go,” he said of those services. “Supply chains are these very fragmented and fixed costs models. So we’re breaking that shackle and trying to basically bring a pay-as-you-go kind of model.” 

What that looks like is two-fold. In some cases, that means Quiet owns the building and serves as the landlord leasing out space to other retailers and brands that pay percentage rent. In other cases, brands will come together to form a marketplace in which they offer up unused warehouse and distribution capacity to others that then pay based on usage. 

“Creating this pay per production model enables different types of asset owners, not just the traditional industrial real estate people, but also people who have underutilized assets to be added onto that platform,” Natarajan said. “It’s also good for operators like us because we’re able to now have unlimited growth without having to worry about the capital needs and how we’re going to be fill up a building and all of that headache that goes with how to scale a business. And it’s beneficial for the environment because you’re optimizing the existing use of assets. You’re not trying to build new assets.” 

Quiet has “quite a few partners” with memorandums of understanding signed, according to Natarajan, with some of those names being announced publicly in the future. 

The executive said a similar financial model is also now being used on Quiet equipment in its fulfillment centers in cases of leased equipment.

That means instead of the typical four- or five-year lease obligation in which assets have to be depreciated over time, Quiet is moving away from that and paying based on usage. Everyone—financiers and equipment manufacturers—end up getting paid in the process and users have the choice of bringing on newer equipment when it suits them.

In short, it’s the elasticity Natarajan seeks as he upends old ways of handling the supply chain, particularly with Quiet’s ambitions to expand its fulfillment network next year.  

The Quiet business has grown 80 percent this year, much of that occurring in the last seven months. Its customer count stands at more than 60 and includes American Eagle, Aerie, Outdoor Voices and Birdies among others. 

Fears of a recession are partly aiding some of the current growth as companies look to cut costs.

“Our pipeline has been the strongest it has ever been,” Natarajan said. “I think two things are happening. Because of a recession, people are looking for more disruptive, discontinuous cost advantage models. The second thing, because interest rates are high, the cost of capital is high, so they’re trying to find variabilized models like what we provide.” 

AEO bought the Quiet business in 2021 for roughly $360 million and Natarajan has been on a tear since then, growing the business and finding new ways to create sustainable efficiencies in distribution and fulfillment. The executive said there is more to come with something “groundbreaking” Quiet intends to announce in February. 

“You’re going to be shocked in the month of February,” Natarajan said. “It’s my Valentine’s gift to the rest of the industry.”