Grand restructuring plans captured by optimistic tag lines have become commonplace for luxury brands that have struggled to swiftly adapt to a changing consumer and retail landscape. In this series, we’ll break down the promises and analyze the progress of the different brands’ master plans to get back on track.
Facing threats and setbacks from fast-fashion brands, Amazon, an increasingly digital customer and its own unwieldy supply chain and management network, Ralph Lauren hit the reset button in 2016.
Now, the American brand is midway through its Way Forward plan, a $400 million restructuring project laid out under the leadership of then-CEO Stefan Larsson and CFO Jane Nielsen in June of last year. It’s projected to be completed by the end of the brand’s financial 2018. At the time of the 2016 announcement, the brand was facing annual revenue growth that had stagnated at $7.5 billion and annual profit losses of about 4 percent since 2014. Its market value was slashed in half as stock prices fell, from $16 billion in 2013 to $7.9 billion last year.
To right ship, Larsson and Nielsen created a two-year business plan pinned on closing underperforming stores, scaling back inventory, reducing discounts, streamlining its supply chain, shifting distribution focus from wholesale outlets to direct retail channels, and overhauling its internal structure to reduce management layers.
These tactics were meant to address Ralph Lauren’s biggest ongoing issues: There was too much inventory being marked down and sold through off-price outlets, and department store partners, facing their own issues, were contributing to constant markdowns. The company’s outdated supply chain and internal structure meant the production cycle stretched over 15 months, totally out of step with customer behavior.
“In recent years, there have been people working at Ralph Lauren who don’t even know who they report to or what their day-to-day duties are,” said a former designer who left the company last year. “It’s a mess of red tape and dead ends, and nothing is getting done.”
While there’s a new CEO and president at the helm, Patrice Louvet, the Way Forward plan is still in the works following the transition. However, Louvet has said he wants to expand the plan’s focus to Ralph Lauren’s digital capabilities, which includes an upcoming e-commerce relaunch, and its global expansion efforts.
With Ralph Lauren’s Way Forward plan has been underway for more than a year, here’s a look at where there have been hits and misses on its biggest promises.
Promise 1: Close underperforming stores, while reinventing existing ones.
Like many traditional brands transitioning into an Amazon era, Ralph Lauren was overstored.
“The path to expansion for retail brands used to be ‘open as many stores as you can,” said Robert Burke, a retail analyst and owner of the firm Robert Burke Associates. “That was the only way to get customers more access to your brand. Now, brands like Ralph Lauren are looking at these vast networks of physical stores, and they’re in trouble.”
Ralph Lauren has been slowly decreasing its store count; in 2017, it had 467 directly operated Ralph Lauren, Polo and Club Monaco stores, down from 485 the year prior. At the end of 2015, the company operated 493 stores. In the first quarter of 2018, the brand reported that operating costs had dipped 13 percent as a result, in part, of the store closures.
At the same time, the brand has been integrating technology and new experiences into its remaining store network. In a report earlier this year done by Contact Labs and Exane BNP Paribas on digital and physical integrations, Ralph Lauren was ranked as the luxury brand best integrating technology into its stores. The best example of in-store tech: its smart fitting rooms, powered by Oak Labs, which have been added to three additional stores after launching in its New York flagship.
Beyond flash, the fitting rooms are mining data for Ralph Lauren as it tries to align its inventory closer to customer taste.
“We know which items are being tried on but not purchased,” said Oak Labs CEO Healey Cypher. “I can tell Ralph Lauren, ‘Here’s a jacket that goes into the fitting room frequently but has less conversion than other jackets. The merch team should look at this — maybe the fit isn’t right, but the aesthetic is.’ Data like that can fundamentally change how retailers run their business.”
Promise 2: Shift distribution focus from wholesale to retail, while cutting back on promotions.
The Way Forward plan looked to change the way Ralph Lauren is distributed by lessening the brand’s presence at department stores, which have become over-promotional, and turn attention back to the brand’s owned retail channels, including stores and e-commerce. According to Louvet, the brand is on track to close 25 percent of its wholesale distribution points by the end of this year.
At the same time, direct retail is growing. In the first quarter of 2018, retail sales jumped 22 percent, while wholesale slipped by 27 percent.
To get the brand back on track, Louvet said the main priority is to distribute through digital retail partners and its own e-commerce site, while controlling promotions. This year, the brand is relaunching its e-commerce site, collaborating with Salesforce to power its back-end logistics, to lessen focus on sales and drive more sales of full-price merchandise.
Promise 3: Align inventory with customer behavior.
This September, Ralph Lauren held its third see-now-buy-now fashion show, following its new motive to get product launches in line with customer behavior.
The shift starts with the supply chain. The brand has overhauled how it gets product to market, in order to shorten the production cycle as well as follow a consumer-facing calendar. What used to take 15 months in production now takes between six and nine, with about 35 percent of inventory on a six-month schedule.
As other brands and retailers, from Gap to Burberry, shorten their production schedules down to about six weeks, Ralph Lauren still has work to do. Louvet said it’s a continued effort to improve speed to market.
“Ralph Lauren is still a work in progress, and there’s a lot of work to do,” said Luca Solca, the head of luxury goods at Exane BNP Paribas. “But I would be optimistic about their chances ahead, based on how they’ve enacted this plan so far.”