Commentary: ‘Fresh start’ for Ralph Lauren
Ralph Lauren starts its new fiscal year in much the same way as it ended the last one: with sales lines splashed with red ink to indicate the severe declines across most divisions of the company. Some of this would be excusable if the iconic brand were at the start of a journey of reinvention, but this comes after multiple attempts to get the firm back on track - most of which have proved to be fruitless.
Nevertheless, with Patrice Louvet now in place as CEO and President, this is a fresh start of sorts for Ralph Lauren. Propriety demands that M. Louvet is given some space and time to bring about change; however, he will be under no illusion that such change must come quickly if it is to satisfy investors who are increasingly nervous about the trajectory of the business. We believe the tenure of M. Louvet has a much greater chance of success than that of his predecessor, if only because he is much more likely to work effectively with Ralph Lauren who still exerts significant control over the brand that bears his name.
There are already some initial signs of the direction of travel that the group will take under its new management team. Promotions have been cut back; inventory has been slimmed down; costs have been trimmed; and, distribution is being rationalized. Of these, we see the inventory and distribution decisions as the most critical elements.
On the distribution side, Ralph Lauren will come out of around 20-25% of department stores in the United States by the end of this fiscal year. As much as this will harm wholesale revenues in the short term, we believe the move will ultimately allow Ralph Lauren to improve brand clarity. As we have noted before, it simply isn't credible for a high-end brand to simultaneously showcase itself in a glitzy store on Madison Avenue while at the same time hawking a random assortment of sweaters thrown in a ragtag way on a table in Macy's.
The inventory and SKU count reduction are equally important. As the company has evolved and grown, it has spawned an enormous number of sub-brands, capsule collections, and labels. In theory, these are supposed to cater to different constituents of the market. In practice, there is no real delineation between many of the elements, and the result is a confused mass of product that is vaguely referred to as 'Ralph Lauren.' Trimming back here is necessary if the brand is to have any chance of cutting through in a very crowded and competitive marketplace.
The scale of the task ahead should not be underestimated. To succeed, Ralph Lauren needs to both win back old customers and secure new ones - especially new, younger consumers who do not feel connected with the brand. Fortunately for Ralph Lauren, our data show that the brand is not actively disliked and is, indeed, held in some affection. However, many lapsed, and non-consumers just do not see it as relevant and meaningful to them. Creating these customer connections is the real key to driving sustainable growth.
We are under no illusions that this process will be hard and painful. We also believe that because of its many false starts, while Ralph Lauren has been running the race of reinvention for quite some time, it is now effectively back at the starting line as it embarks on its latest quest to win back its lost glory.