What Are The Challenges Facing Ralph Lauren?

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RL: Ralph Lauren logo
RL
Ralph Lauren

Ralph Lauren’s (NYSE:RL) performance in recent quarters has been quite poor. This has prompted the company to develop a transformation plan, which would involve closure of unproductive stores, reduction in the workforce, more efficient inventory management, and shorter production cycles.

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The company has been facing a number of challenges with regard to its operating model. These include:

1. Not Enough Focus On Core Brand Strength

  • The company’s three core brands of Ralph Lauren, Polo, and Lauren, account for a vast majority of the brand strength and performance.
  • 30% of the styles make up 70% of the business.
  • 65% of the styles are considered unproductive.
  • A large number of brands and initiatives have diluted the marketing resources, which has reduced the focus on the core brands.

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This has prompted the company to cut back one-third of the unproductive styles in the past six months, and further cut the number of styles in the future. Ralph Lauren has also undertaken to focus on the core brands, while operating the smaller brands with an increased focus on ROI and strengthening the core. The marketing and shopping experience will also be evolved accordingly.

2. Excess Inventory Problems

  • Long lead times would result in a mismatch of supply and demand.
  • The lead times are an average of 15 months.
  • There is also an absence of centralized inventory control and optimization.
  • Excess inventory has driven up discounting and transfers to outlet and off-price stores.
  • This has resulted in an inventory growth of 26% in the last three years, while the growth in sales in this period has only been 7%.
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The company is now taking steps to reduce the production time by six months, from 15 months currently to 9 months, with an 8 week test pipeline. The supply chain will also be more demand driven in order to cut down on the inventory. This will help in reducing the transfer of full-price inventory into discounted and value channels. Ralph Lauren is also taking steps to right-size its cost structure by stripping out three layers of management (from today’s 9 to 6), terminating 1,000 jobs, closing over 50 stores, and trimming SG&A costs that are not driving profitable sales growth.

Ralph Lauren is attempting to improve operating margins and EPS by FY 2018, and return to profitable sales growth by FY 2019.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ralph Lauren.
 
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