Emma Cosgrove @ Business Insider has reported that the head of AEO Logistics is out. What happened here?

The logic was straightforward and exciting for AEO:

• Take advantage of the growth of eCommerce

• Elevate the role of technology

• Provide an alternative narrative to Amazon's dominance of logistics

• Stay as asset-light as possible.

• Build using partners rather than attempting the messy work of vertically integrating your supply chain stack

• Buy a robotics company to make things more efficient

What are the problems with this approach?

• In logistics, anything you add to the base level of transportation, equipment, and labor is overhead.

• Customers take a long time to switch logistics providers, meaning payback takes a long time.

• If you don't own equipment end to end, your margin on your providers is also overhead. You won't be price competitive selling to a larger Enterprise customer.. You can be more flexible, but what % of volume will you get?

• The only customers that truly matter are ones with enough volume to support a facility. Small customers who churn add to cost and don't provide enough efficiency due to context switching unless these customers literally all have the same requirements -- difficult to do if you are not Amazon FBA.

• The only thing lower margin than operating a retailer is running a logistics business. Leaders should prefer to invest higher margin businesses than their current one. Why? The cost of mistakes then becomes much less. (Walmart is following this approach). If you're investing down the margin chain, invest slowly and don't try and scale it too quickly.

• Of course the company ran headlong into a mixed post-COVID economy with more supply chain slack than during COVID, and compressed margins from their customers.

👀 BTW - what other company does this sound like? Shopify

If someone with decades of experience like Shekar cannot execute on this approach, what hope do they have? They are likely to bleed margin attacking the SMB market, and outright fail to move up-market. If Shopify isn't bleeding margin, then their partners will be as they push costs to their partners.