How Has Ralph Lauren Performed In Terms Of Inventory Management?

-4.53%
Downside
183
Market
175
Trefis
RL: Ralph Lauren logo
RL
Ralph Lauren

Ralph Lauren (NYSE:RL) has performed quite poorly in the past few years when it comes to inventory management. The growth in inventories has far outpaced the revenue growth for the company. Even in FY 2016, despite a 3% fall in revenue, the inventory increased 8%. The inventory turnover ratio for RL has been declining, implying poor sales, and consequently, excess inventory. The days inventory indicates the number of days a company holds on to its inventory before selling. This metric is usually measured using cost of goods sold, but can also be measured with revenue. Both these factors have been rising, meaning that the average length of time that Ralph Lauren’s cash is tied up in inventory has been increasing. Even an increasing inventory to revenue ratio indicates either falling sales or excess inventory in hand. When all these are considered, the excess inventory problems for Ralph Lauren are highlighted, which have driven up discounting and transfers to outlet and off-price stores. This trend has also significantly impacted the margins of the company.

A number of steps are being taken by the company to fix this problem, the primary one being reducing the long lead times, which results in a mismatch of demand and supply. Currently, the lead times are 15 months, on an average. The company intends to reduce this by six months.

RL Inventory

 

 

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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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