American Eagle pitches internal supply chain platform to retail

American Eagle wants to be more like Amazon.

Not to get in the business of selling everything from shoes to pet food to toilet paper. But to master a business function that became critical for retailers during the Covid-19 pandemic: the supply chain.

That’s where Shekar Natarajan, American Eagle Outfitter‘s chief supply chain officer, comes into the picture. Since he joined the apparel retailer roughly three-and-a-half years ago, the company has acquired two supply chain businesses for hundreds of millions of dollars and began swiftly building out a logistics platform that others companies — even its rivals in the apparel industry — can utilize, too.

It’s a bet that American Eagle can lead the industry into a new territory of vertical logistics and dilute costs. Its peers will either emulate the model and play catchup, or lean on American Eagle long term.

American Eagle’s goal, according to Natarajan, is to “Uber-ize” the global supply chain, thereby making it a shared service for retailers. His belief is that brands that compete for shoppers in clothing, makeup or home goods shouldn’t also be competing over things like quicker delivery windows and cardboard boxes.

Instead, if enough businesses work together and pool resources, a conglomerate of retailers could be shipping out just as many packages daily as Seattle-based e-commerce behemoth Amazon, and hopefully at a profit, Natarajan explained in a recent sit-down interview.

He calls American Eagle’s communal supply chain platform the ultimate “frenemy network.”

“The only way that you could actually have Amazon-like scale, Amazon-like costs and Amazon-like capabilities — you have to share,” said Natarajan. “Collectively, we can have the same [package] volume as Walmart. … And that way, companies are only competing on what they do best, which is the product, marketing and customer experience.”

The coronavirus pandemic accelerated an existing opportunity for American Eagle, which reported record revenue of $5 billion in fiscal 2021, up 33% from the prior year. As sales ballooned, so did e-commerce revenue. American Eagle’s digital sales represented 36% of total transactions by the end of 2021, compared with 29% two years earlier.

That means shipping more packages to customers, handing them fewer shopping bags at the cash register, and shifting inventories around to meet newfound demand on the internet.

At the same time, backlogs and shortages have snarled the global supply chain due to labor constraints, temporary factory shutdowns and skyrocketing costs to manufacture and transport goods — to name just a few obstacles.

American Eagle isn’t immune to these challenges….