Here Are Ralph Lauren’s Key Growth Drivers

A focus on improving its brand image, an integrated omni channel strategy and expansion efforts in Asia could be the key growth drivers for Ralph Lauren (NYSE:RL)  in future. The company is merging its luxury brands into one label for men and a single label for women to drive brand efficiency.  This initiative, coupled with its brand popularity, can generate revenues in future. Ralph Lauren is also working on a next generation e-commerce platform to support its omni channel efforts, which will be an important distribution channel in future. China continues to remain a strong market for the company and we believe luxury spending in this region will continue and drive growth for Ralph Lauren.

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Strong Brand Portfolio

In order to drive efficiency in its brands, Ralph Lauren is merging its many luxury brands to create a single label for men and one for women to simplify the luxury status around these brands. This strategy has been well received in its elementary stages. The company is working on product innovations such as launch of Polo for women and expansion of the Ricky handbag line in accessories. We believe Ralph Lauren has a strong brand appeal and popularity; it was ranked in the top five favourite brands among teens. ^[1]. Given the recent restructuring measures, improving its brand image could be a key driver of revenue growth in future.

Continued Investment In Its E-Commerce Platform

Ralph Lauren’s increase in retail revenues during FY2015 was primarily due to a 16% revenue growth in its global e-commerce operations. The company is currently working on a next generation e-commerce platform to support its investment in the integrated omni channel strategy used in its business operations. In 2015, Ralph Lauren enhanced its e-commerce website to provide quick shopping capabilities and a more streamlined checkout process. Global retail e-commerce sales are expected to cross $1.5 trillion by 2019, although the rate of growth will slow in the out years.

An A.T Kearney connected consumer study reported that 76% of the survey respondents globally mentioned that they had bought fashion and apparel goods online in the past three months. ^[2]., making it one of the most popular products online.  The report also mentions that two thirds of the customers purchasing online use a physical store either before or after the purchase, thus indicating the importance of an omni channel strategy.

We believe, given the consumer trends an integrated omni channel strategy will be key for Ralph Lauren’s growth in future.

Expansion in Asia

China is an important market for Ralph Lauren, since the “new” Chinese middle class which emerged after a long stint of double digit growth in the economy has an aspiration for luxury products.  Ralph Lauren had expected its Asia division to account for about a third of its sales, up from 12% currently.  However as growth in China slowed down to high single digits and its “anti-extravagance” drive took shape, luxury spending in China took a hit. Despite this, we believe China is still a lucrative market for Ralph Lauren and at a 7% growth rate; the absolute size of the Chinese economy would huge. Once this economy settles down from its transition phase to a “new normal” it could hold a strong growth potential for the company.  In FY2015, the company opened 18 stores internationally and a luxury flagship store in Greater China.

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1. The Most Popular Brand, According to Teens, Might Surprise You,refinery29.com, October 15, 2015 [↩]
2. Global Retail E-Commerce Keeps On Clicking, atkearney.com, April 2015 [↩]