- Company aims to cut supply-chain lag to 9 months from 15
- Larsson joined company last year after stints at H&M, Old Navy
Ralph Lauren Corp., the nearly 50-year-old brand known for preppy fashion and premium prices, is looking to operate more like fast-fashion retailer H&M.
Chief Executive Officer Stefan Larsson, who previously worked at Hennes & Mauritz AB and Gap Inc.’s Old Navy, is working to get products through Ralph Lauren’s supply chain in nine months -- down from 15 months currently. The idea isn’t to match H&M’s low prices, but to mimic its quick reaction to fashion trends. As part of the shift, the company will carry less inventory, reducing the need to discount clothing when it gets out of date.
The change requires new thinking for a brand that has traditionally planned out fashion lines well in advance and then hoped that customers liked what they saw.
“We plan on a plan instead of planning what actually performed -- that means we’ve got a mismatch between demand and supply,” Larsson said during a presentation to investors on Tuesday.
The supply-chain changes are offering hope to investors during a bleak year for Ralph Lauren. The company expects sales to decline by a percentage in the low double digits in fiscal 2017, which ends around March of next year. Analysts had estimated a 4 percent drop on average, according to data compiled by Bloomberg. But Larsson expects Ralph Lauren to stabilize in fiscal 2018, before emerging as a streamlined organization the following year.
While the company plans to rely less on discounts, it has no plans to stop selling to off-price channels and will deepen its collaboration with department stores, Larsson said in a separate interview.
“Well-run department stores will be highly attractive in five to 10 years,” he said. “It solves the real consumer problem, which is: Make it easy for me to shop because you have a curation of choice.”
Larsson, who took the CEO reins from the company’s namesake founder in November, intends to bolster both sales and profit margins by bringing clothes to market faster. The move is part of a “Way Forward” program that includes slashing 1,000 jobs and shutting down underperforming stores. He’s also cutting three layers of management, while he has made three new “strategic hires” which will be announced in the near future.
Ralph Lauren “is more of a sleepy company that now has the opportunity to reinvigorate not just the brand but the supply chain,” said Laurent Vasilescu, an analyst at Macquarie Group Ltd. “This will help.”
After Ralph Lauren’s glum sales forecast sent shares tumbling in early trading Tuesday, Larsson’s presentation helped soothe investors. The stock was down just 2.4 percent to close at $94.06 in New York.
“They are willing to take a hit on sales in order to refine their distribution,” said Chen Grazutis, an analyst at Bloomberg Intelligence.
Ralph Lauren has been offering heavy promotions to get customers in the door, part of an industrywide reliance on discounts. It is now taking “very aggressive steps” to reduce the level of inventory in the off-price channel and rely less on promotions and discounts, a measure that will hurt earnings in the short term, said Chief Financial Officer Bob Madore.
As part of the turnaround plan, the New York-based company also will step up marketing and focus on its three core brands: Ralph Lauren, Polo and Lauren. And it’s working to improve the online experience.
“We see a clear path to tap into the potential and massively to drive brand strength growth and profitable sales growth,” Larsson said. “It will take time though.”