What Are The Challenges Facing 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.
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.
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.
Have more questions on Ralph Lauren? See the links below:
- What Led To A Sudden Drop In Ralph Lauren’s Share Price?
- What Percentage Of Ralph Lauren’s Stock Price Can Be Attributed To Growth?
- Ralph Lauren Q4 And FY 2016 Earnings And Revenue Beat Expectations
- Why Have Ralph Lauren’s Licensing Revenues Been Declining In Recent Years?
- How Have The Number Of Ralph Lauren Stores Operated By The Company Changed Over The Past Five Years?
- Why Is The Online Market Place The Next Big Thing For Ralph Lauren?
- How Has Ralph Lauren Performed In Comparison To Its Peers?
- How Has Ralph Lauren’s Sales Breakdown According To Geographic Locations Changed Over The Past Five Years?
- How Will Ralph Lauren’s Retail Division Perform In The Next Five Years?
- How Did Just The Month Of February Make Ralph Lauren One Of The Worst Performing Companies, Amongst Its Peers?
- Why Did We Revise Our Price Estimate Of Ralph Lauren To $102?
- How Will Ralph Lauren’s Revenue And EBITDA Composition Change In The Next 3 Years?
- What Is Ralph Lauren’s Fundamental Value Based On Expected 2016 Results?
- What Is Ralph Lauren’s Revenue And EBITDA Breakdown?
- Ralph Lauren: Year 2015 In Review
Notes:
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