Ralph Lauren Fires a Warning Shot at Department Stores
Ralph Lauren's new CEO has a message for the department stores and off-price chains that sell a big chunk of its clothes: Expect to lose some business.
Stefan Larsson on Tuesday outlined his plans for the first time since coming on board last year to refurbish the iconic American fashion house. The company's sales, profits, and share price have languished as it failed to react to shifting consumer tastes and got too entangled in the discounting wars at retail chains such as Macy's and T.J. Maxx.
Ralph Lauren's stock fell by as much as 10 percent on Tuesday as Wall Street digested Larsson's outlook -- which included $400 million in restructuring costs by the end of 2017, along with expectations that 2017 revenue will suffer a double-digit-percentage decline from 2016. He also said the business won't return to growth until 2019.
As I've previously written, rescuing Ralph Lauren is possible, but it won't happen fast. And actually, Tuesday's stock decline and reduced sales expectations will likely help the company in the coming years, by lowering the bar for Larsson as he executes his turnaround.
I'm less optimistic about department stores, which will see big changes as Ralph Lauren revamps its business.
Lousy sales at Macy's, Nordstrom and other department stores have hurt Ralph Lauren, which took in more than 40 percent of its revenue from such chains and other wholesale channels last year. Ralph Lauren and other brands, such as Coach -- which fired its own warning shot at department stores back in April -- are starting to fight back.
Larsson said consumers are willing to spend money on "exciting" things; but "exciting isn't selling a generic product with more and more discounting." In other words, consumers want to spend, just not in what have become desperate, highly-promotional department stores.
Larsson said Ralph Lauren is committed to its wholesale channels and is working with department stores to shore up sales, though he offered no details about those plans. But he also said the heavy discounting is damaging its brand -- and profits -- and that the company has been reducing shipments to department stores. The company said it expects revenue from department stores to shrink by a double-digit percentage in 2017.
Larsson also said he's had it with how long it takes to sell Ralph Lauren goods, which increasingly end up at off-price retailers such as T.J. Maxx. He said the company will overhaul its supply chain to cut the amount of inventory it has on hand.
If Ralph Lauren actually goes through with its plans, then that will likely have strong ripple effects across the retail industry. For one, off-price retailers such as T.J. Maxx and Nordstrom Rack will have to rely more on their own private-label brands, which could hurt their sales, as they want to attract shoppers with top brands at bargain prices.
And department stores will have to find ways to bring in customers beyond slashing prices. Because as Ralph Lauren, Coach, and other brands go directly to consumers through their own stores or digital channels, they -- and consumers -- will have less need for department stores.
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