For Ralph Lauren, there’s a light at the end of the tunnel following a period of perpetually slipping sales.
On Thursday, the brand’s profits shifted upwards, beating expectations and resulting in a shares jump. Following the announcement of its ‘Way Forward’ restructuring plan in June, the Ralph Lauren executive team reported progress on the set of guidelines and action items laid out for fiscal 2017.
“We are pleased with the process,” said Jane Nielsen, CFO of Ralph Lauren, who previously held the same position at Coach. “Key elements are in place to ensure continued progress. We have strong collaborative relationships with our wholesale partners, a strong brand and balance sheet and a motivated committed team of 25,000 Ralph Lauren employees around the globe.”
Revenue slipped another 8 percent to $1.8 billion, another consecutive loss for the brand after revenue fell a comparative 4 percent in the previous quarter. But gross profit climbed to $1 billion, 40 points above the same time last year.
“Often, plans and strategies get developed but it’s refreshing to see how inside-out they went to identify problems across the business, from products to stores to the brand itself,” said Chris Paradysz, founder and CEO of PMX Agency. “That’s powerful.”
An aggressive approach to downsizing inventory, stemming discounting, closing stores and streamlining internal processes, including establishing a production process that aligns with seasonal trends, are what Ralph Lauren hopes can bolster it back to a point of stability. The ‘Way Forward’ plan closely mirrors the efforts that its peers like Burberry and Coach have made to invest in digital, and modernize for a new luxury consumer.
“We are changing with the consumer, as we demonstrated in September with our first see-now-buy-now runway show at our flagship on Madison Avenue,” said Stefan Larsson, the brand’s president and chief creative officer. According to Larsson, the show, which shut down Madison Avenue during New York Fashion Week, earned twice the global media impressions of the prior Ralph Lauren runway show in the spring.
Larsson didn’t mention how much, or if at all, sales increased thanks to the consumer-facing approach to the past fashion season. But in addition to bringing new collections in season, the brand is taking steps to increase profitability elsewhere. The brand closed seven stores over the course of the quarter and plans to close 50 more after the holidays. The number of skus offered by Ralph Lauren in its most recent collections decreased by 20 percent, and the brand plans to continue to slash product bloat before the end of the fiscal year. To help in doing so, it cut its diffusion line Denim and Supply entirely.
“The SKU reduction frees up time, resources and productivity to focus on the desirability of our core assortment,” said Larsson. “It brings our buys closer to market and reduces early commitment, and gives us room to respond to in-season trends.”
This effort to pull back on product sprawl, both in retail and in wholesale, in order to focus on a core message is a reaction to the loss of brand identity brands like Ralph Lauren, Burberry, Tommy Hilfiger and Coach are facing.
“Brand identity is important, and brands are moving to try to integrate their offerings into a streamlined approach across channels,” said Ashley Paintsil, editor at fashion investment platform FashInvest. “Adapting to how the consumer shops should be the priority.”
Right now, Ralph Lauren’s biggest pain points are its performance in the North American market — sales there alone fell 12 percent — and its ongoing lack of a global CMO, a position it’s still looking to fill. But a renewed focus on its mobile and e-commerce channels are promising for a brand looking to appeal to a global, multichannel customer. The brand recently launched a new mobile web page (it doesn’t have a native app) and improved capabilities for navigation and checkout. Ralph Lauren has been a digitally forward brand, along the likes of Burberry, and the fact that it hasn’t paid off for either brand yet shouldn’t deter other luxury brands from modernizing.
“It’s not a done deal, but we’re seeing this commitment start to play through,” said Paradysz. “The equal focus on mobile and e-commerce shows what an important investment it is for them and how it ties to what the consumer perceives the Ralph brand to be. They really paid attention to that.”
