What's Next for Ralph Lauren?
For the first time in its 48-year history, Ralph Lauren's fashion empire has new leadership. Stefan Larsson inherits a label with rich heritage and global name recognition. But it's also one that's grown a bit stodgy and stale.
Ralph Lauren's had a rough year. Shares had dropped 44 percent this year before Lauren announced Tuesday that he was stepping down as chief executive officer from the company he founded. Comparable sales fell 2 percent last quarter, worse than analysts had anticipated, while sales through wholesale channels slumped 6 percent. The anemic results left investors spooked and yearning for change.
Investors see Ralph Lauren as a brand in need of "a serious face-lift," said Chen Grazutis, a Bloomberg Intelligence analyst. Larsson has precisely the kind of "extended experience in retail" that suggests he could help reinvigorate the company, Grazutis added. Ralph Lauren faces a brutal competitive environment, with the rise of fast-fashion powerhouses such as Zara, H&M, and Forever 21, and a shift toward online sales attacking the brand from all sides.
Retail, not fashion design, is Larsson's world. While Lauren's been setting trends, Larsson has followed them. He's credited with the revival of Gap's Old Navy brand. After becoming its president in 2012, Larsson streamlined operations and kept Old Navy trendy. Prior to that, he spent 15 years at H&M, a retailer bent on relentless fad-chasing in a perpetual quest for relevance. Though no one expects Ralph Lauren suddenly to morph into a fast-fashion business, it's that same sort of relevance that's needed for an aging label.
For Ralph Lauren, it's always been about bringing classic Americana to the masses, whether designs that evoke the romanticized American West, denim workwear that oozes American industry, or preppy polos that vibe with the American Northeast. It's a label that transports feelings of the past to the present day. By nature, since it's constantly diving into nostalgia, there's always the threat of the brand becoming tired and worn out.
"With Old Navy, [Larsson] tried to get to the essence of what the brand meant to consumers and move from there," said Liz Dunn, CEO of consulting firm Talmage Advisors. "Which is probably the right approach at Ralph Lauren too."
Beyond the brand, Larsson faces several other challenges. He joins at a time when the company is undergoing a reorganization, with six global presidents running slices of the company. The effort—scheduled to be completed in 2017—will save $100 million annually and boost profit margins, according to the company. Ralph Lauren will also trim the company's product count to keep inventory low and reduce its reliance on discounts. Plus, the company's chief operating officer and Lauren's No. 2, Jackwyn Nemerov, will retire in November.
In the meantime, the company is working to offset the impact of a strong U.S. dollar depressing tourism at its North American stores and boosting traffic in Europe and Japan, where business increased by "double digits,'' Nemerov said on the company's first-quarter earnings call on Aug. 5. In the U.S., Ralph Lauren depends largely on foreign tourists. About half the company's stores and many of its outlet locations are in cities that are major travel destinations, she said.
Last quarter, Ralph Lauren chose not to slash prices as steeply as competitors. That decision had consequences on sales. "While we knew this decision could slow our revenue growth, we believed it was the right thing to do for our brand,'' Nemerov said on the call. "We have seen a pickup in sales at the beginning of the second quarter. However, we remain cautious, as most of the quarter remains ahead of us.''
With a new CEO who has specialized in mass market essentials, not grandiose fashion shows, perhaps the world's already caught a glimpse of Ralph Lauren's future. As fashion critic Cathy Horyn at New York magazine noted, Lauren's fashion show on Sept. 17 lacked some of his usual flair—no chandeliers about the runway, no opulent flower arrangements. Even the clothes themselves were more mellow. "Come to think of it, the evening clothes in the show were unusually subdued," she wrote. "Where were the gowns?"