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Why AEO’s Logistics Startup Is Taking a Page Out of Shein’s Playbook

For Shekar Natarajan, supply chain is a “bad word” that he’d rather banish from the logistics lexicon—even though it’s right there in his title as the chief supply chain officer for American Eagle Outfitters (AEO).

The phrase, he said, conjures up much of what the world has witnessed since the pandemic exposed fundamental flaws in the method of moving goods from points A to B: fragility, information asymmetry and an incentive to “create opaqueness” so that the lucky few end up with lopsided power to ply their pricing leverage.

What might have worked in the pre-digital era now seems woefully out of touch in a sector that benefits from “open sourcing data and open sourcing resources,” said Natarajan, a native of southern India’s Hyderabad. There’s a “huge opportunity” in commoditizing each link in the precarious chain of supply to cut “recurring infrastructure investments” so companies can compete on the product they’re known for. He likens retailers setting up routinely underutilized warehouses to “building a church for Easter,” illustrating the mismatch between peak capacity and typical weekly demand. 

That’s what got Natarajan to his “other” role overseeing Quiet Platforms, the AEO-incubated logistics startup born from the ambitious idea and hundreds of millions of dollars in strategic acquisitions. With a decade and a half of experience inside Fortune 500 power players from Coke and Pepsi to Walmart and Target, the executive is applying what he learned about the good, bad and ugly of goods movement to advance the idea of rebranding “supply chain” into what he calls “commerce connections.”

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Every brand and retailer should have “democratic access” to supply chain operations, capabilities and support, according to Natarajan, who frequently frames the conversation in terms of leveling the playing field.

“If shipping is the fastest-growing expense on any company’s P&L, how do we buck the trend?” he said, pointing out Amazon is responsible for the consumer’s “addiction” to lightning-fast delivery. Quiet’s work decentralizing inventory from two middle-of-the-country facilities to six close-to-customer locations and adding a dozen carriers to the two it was using yielded “very apparent” results for AEO in about six months “to the tune of $50 million,” he said of the startup’s early test in 2020. The logistics platform has since signed up more than a dozen brands from Boll & Branch and Birdies to Thursday Boot and Mack Weldon.

“That’s the power of the open model,” Natarajan said. “You’re taking everyone’s cost center and converting it into a profit center or taking everyone’s network and making it more efficient. The network efficiency drives cost down because you’re surfacing untapped, underutilized capacity. Now everyone is able to access the market at a lower cost. So at scale, the cost of supply chain will go down significantly.” 

This approach also unlocks “better responsiveness and more resilience in the network because you’re not tied to one location,” he said. “If you extend that philosophy all the way to the factory, that’s a big impact.” Quiet is using its newly acquired NVOCC, or non-vessel operating common carrier, certificate so that platform clients can air freight products directly from facilities in China to end consumers in the U.S. For the past month American Eagle and Li & Fung have been using the new service out of Shenzhen to get “an early read on the business,” Natarajan said.

“You’re able to see what’s selling like crazy and double down on inventory,” he said. The model is very much in line with how Shein operates, he added, with a consolidation center in the country of origin holding inventory until a shopper’s digital order comes whizzing over the internet.

“The beauty of how we’re architecting this model is it actually informs demand patterns,” Natarajan said, which drives “smarter” buying decisions and could help decouple fashion from its over-reliance on “pipeline inventory.”

He’s also guiding Quiet to untapped opportunities south of the border with a facility in Mexico on deck for the new year to support high-duty categories like swimwear that benefit from free de minimis shipping. That will help further reduce costs by moving product from business to business, rather than the more expensive business to consumer model. Distribution centers in Quiet’s U.S. network will serve as “cross-dock points” for shipments moving from Mexico to stateside consumers, unlocking inventory and transportation benefits, Natarajan said.

The supply chain chief will be addressing more on the topic of logistics and operating through turbulent times at Sourcing Journal Fall Summit on Oct. 18.