A day after Ralph Lauren results were released showing a 12 per cent decline in sales the company announced its CEO Stefan Larsson will step down on May 1 following disagreements with chairman and founder Ralph Lauren over the direction of the company. The company’s share price fell more than 10 per cent this week.
“There is no getting around the fact that this is a dire set of results from Ralph Lauren,” observed Neil Saunders, MD of GlobalData Retail. “Not only is the 12 per cent revenue decline a significant step down from the prior quarter, it comes off the back of a very soft comparative from 2016 when overall sales dipped by just over 4 per cent, partly thanks to very unfavorable weather.”
Ralph Lauren closed its Hong Kong flagship store in Lee Gardens in the last quarter of 2016, part of a global move to streamline its retail channels as it tries to revive sales and profitability.
But the main reason for the decline, says Saunders is the company’s wholesale vision which he described as “in freefall”. Retail sales were also down.
“Both things, along with some costs from the transformation plan, have resulted in a sharp net income decline of 37 per cent.”
He said the departure of Larsson after just over one year in the role in which he was charged with turning the company around gives the impression of a brand in crisis.
“We believe it signals significant internal wrangling over the future direction of the firm. It also demonstrates the founder’s continued dominance over the business. As much as Ralph Lauren should be respected for his significant achievements, and his undeniable design talent, we are concerned by the orthodoxy of his leadership, under which questioning and fresh thinking are relatively rare. This, in our view, is not the way to reinvent a brand that has clearly lost its way.”
Ralph Lauren has “lost some of its cachet”
Analysis of GlobalData Retail’s research shows that over the past two years, there has been a steady decline in the number of shoppers considering buying from Ralph Lauren.
“The same data also show that the brand has lost some of its cachet, especially with younger shoppers,” says Saunders.
“There are several reasons behind this slide in popularity. The first is a change in consumer tastes and sensibilities. For a long time, Ralph Lauren, through its various brands, was the undoubted king of preppy cool. That aesthetic is no longer as popular as it once was: and for many consumers it stands for old world, old money exclusivity. Such concepts are an anathema to today’s younger shoppers. To be fair, designs have changed and the latest fall/winter collections are a step away from the preppy vibe and incorporate more ‘democratic’ aesthetics like western and street wear. Unfortunately, because Ralph Lauren is such a strong and distinctive brand, it is hard to shed its historic image.
“The second issue is that the Ralph Lauren brand has become too ubiquitous and diffused. At the higher end, the brand is carefully controlled and curated, but as it filters down through retail channels, that control is lost. The Ralph Lauren flagship in New York’s Upper East Side is a world away from the selection of random Polo sweaters thrown onto a fixture at Macy’s, and it is becoming increasingly difficult for the two to coexist without causing brand confusion.”
While Saunders acknowledges the brand is taking steps to remedy the problem of ubiquity, with Ralph Lauren becoming more selective about the channels it sells through, to work economically it must be counterbalanced with a step up in the retail side of the business.
“Those uplifts are not yet coming through, and we see few signs that they will do so any time soon. There is a lot more work to do before retail is back on track.”
For the sake of balance, it is important to recognise that a strong dollar has affected the Ralph Lauren results, depleting foreign earnings and reducing tourist spend at flagships within the US, he said. “However, this simply does not explain away all the declines; even on a constant currency basis, Ralph Lauren’s sales and profits are tumbling.
“Ralph Lauren has made some progress, and does have a general sense of the direction it wants to move in – a direction that we believe is broadly sensible. However, execution has been extremely poor, and will not be improved by management squabbling or the absence of key executives. As such, the year ahead is likely to be another one of treading water rather than of significant progress.”
This story first appeared in IR Asia.