What’s Brewing Over at Ralph Lauren, and It’s More Than Ralph’s Coffee

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\"\"“Double, double toil and trouble,” wrote Shakespeare, and I can’t think of a better description of the situation at Ralph Lauren Corporation. “Double, double,” refers to two leaders in two short years. On February 2 the company announced that then-CEO Stefan Larsson was stepping down due to creative differences, followed with another on May 17th with the appointment of his replacement, P&G alum Patrice Louvet.

Mid-July Louvet will inherit the company’s “toil and trouble,” which is well documented. In its most recent reporting, quarterly sales were down 16.3 percent, marking the ninth straight fall in quarterly sales. For the full year 2017, all company revenue streams were down: wholesale off by 15 percent, retail down 6 percent and licensing off 1 percent.

Numerous analysts, including yours truly, have described the company’s troubling specifics – declining sales, dynamic competition, channel disruption, over-reliance on discounting and off-price outlets, ineffective omnichannel strategies and numerous operational inefficiencies.

To date, the company has addressed some of these, including closing underperforming stores, reducing promotions, reducing and realigning management structure and cutting out excess SKUs and overlapping product lines to focus on higher-demand products.

Yet still, the company expects sales to continue to slide in the current quarter. As a result, its stock is nearing its two-year low. Louvet has plenty of toil ahead to deal with the troubles.
Bringing in a fashion outsider may be the key to RL’s success.

Some experts question whether Louvet, without experience in the intricacies of the fashion industry and managing fashion\’s creative resources, will be able to get up to speed quickly enough. Managing a team that is creating a new shampoo or razor blade takes a totally different skill set than designing next season’s fashion. Admittedly, while Louvet comes with a great business resume, he doesn’t know the unique challenges of bringing fashion through the entire design process into the market.

On the other hand, coming in as a fashion industry outsider may prove to be a key advantage for Louvet when he assumes his new leadership role. Above all, he won’t be blinded by some of the cumbersome, long established conventions and structures so prevalent in the fashion industry today. He will have a fresh unbiased eye. He will also be able to adapt his expertise in leveraging the many market and structural changes that have taken place since the recession. Unhampered by conventional wisdom, Louvet can find innovative ways to shift the company as it faces a customer who has changed and a market that has evolved.

First and foremost, it will mean nurturing a consumer-centric culture within the company that lets the customer lead. This is not a discipline common in the fashion industry, especially with visionary designers like Ralph Lauren who view their role as the leaders that customers follow.

The board at Ralph Lauren, having chosen a leader from outside of the fashion industry, is clearly betting that Louvet will shift the existing corporate culture to be responsive to the current fashion market where the customer, not the company, ultimately has all the power.

I reached out to a number of my contacts, all of which wished to remain anonymous, to get an insiders’ view of the company as it prepares to welcome Patrice Louvet to the corner office.

1. How will RL restore customer loyalty?

One of the most profound things I have found in the circles I run in, both in the industry and among fashion consumers, is the deep affection people feel for Ralph Lauren and the company he built. Many are as saddened by the company’s current troubles as are the employees who work there. They recognize that Ralph Lauren and his company paved the way for so many brands and nurtured terrific design talent that moved on to further success.

Ralph Lauren’s creative vision is what made the brand great, and what insiders believe can make the brand great again. But great design alone isn’t enough anymore. “Mr. Lauren has an illustrious career and success as a luxury design visionary, but the brand needs to speak to today’s consumer. That is the stumbling block,” said one retail executive. “It’s not so much about the product, but it’s how we get it to the customer.”

In the realm of fashion, the company signals it will retain its iconic American lifestyle heritage, all the while reinterpreting it to the sensibilities of modern American tastes. The company plans to do that by getting back to basics: great product, great quality, and great customer experiences. As a result, back-to-basics then seems to be the “Way Forward” for Ralph Lauren, referencing the plan that previous CEO Stefan Larrson put into place in June 2016 and continues to guide the future of the company.

But while the company will look back to the brand’s heritage in product, it is looking forward to new ways to engage customers and deliver the Ralph Lauren iconic looks to today’s connected customers. That means evolving the customer shopping experience. “Technology will be increasingly important, but so will the customer experience at all touchpoints. It has lost traction in proper positioning strategy and technology,” said one insider. “The improvements being made reflect work being done to strengthen the brand, but it has a ways to go.”
The company needs to build pathways to share insights, ideas and perspectives from the customer-facing lines up the corporate ladder. “That is how you find out how well you are doing and where you get ideas in how to strengthen your brand. Your customer speaks to you,” said another insider.

Creative enterprises, like fashion, need cross-pollination, both from within and outside the company. But some see that the RL culture isn’t necessarily breeding that free flow of ideas. “Great companies listen to the customers and they also listen to the people that work there. That is where you get your answers. You have to be where your people are and where your customers are,” another advised.

The “Way Forward Plan” included provision to cut out excess layers of management from nine to six layers, but even those six degrees of separation may be too many to channel effective communications up and down the ladder.

2. How will RL build investor confidence?

As a public company, renewing investor confidence is a critical question for the company, made even more so by the flagging stock valuations over the past several years. Seeking Alpha stock analyst and blogger, Alisa Kazimirchik, recently wrote, “The company is the weakest player on earth,” referring to negative ROA and ROE figures as of the company’s most recent reporting.
Restoring investor confidence will be a major focus for Patrice Louvet in the days ahead. He was selected for that capability, as he brings a proven track record of transforming and growing major global brands and streamlining and refocusing business units. How well he will work with Mr. Ralph Lauren remains to be seen, as those differences were reportedly the cause of Larsson’s exit.

The “Way Forward Plan” includes attacking many efficiencies, such as reducing supply chain lead times, employing best-in-class sourcing and executing a disciplined multi-channel distribution and expansion strategy in order to right size the cost structure and implement an ROI-driven financial model to free up resources to invest in the brand and drive high-quality sales, according to the official release.

Those tactics continue to be the priorities for the company in order to convince Wall Street and the investment community that RL is a brand they can trust to grow in the future. But other fashion-centric public companies are struggling with the same challenge, including Michael Kors and Coach.

“We are in a volatile world of change in retail in general and so many established brands are struggling,” one executive said. “It’s not so much that Ralph Lauren Corporation has gotten off track, but the industry is going through unprecedented change. Trying to find effective ways to shift is especially hard in this environment because the consumer has changed and continues to change.”

3. Where does “Ralph’s Coffee” experience fit into the plans for the company?

Two things that puzzled me in the company’s April announcement: first it was closing the flagship Polo store in Manhattan on Fifth Avenue and 55th Street, and second, its plans to expand its Ralph’s Coffee bar franchise. My initial thoughts were that expanding the Ralphs’ Coffee bar concept was what the brand needed to create relevance to the next generation of shoppers. But shouldn’t Ralph Lauren be serving up better reasons to buy an authentic $300 Ralph Lauren polo shirt, instead of serving a $3 cup of coffee?

However, there may be method to the madness, as the coffee bar concept extends the heritage of the iconic fashion brand into meaningful social experiences for customers as an introduction to the RL world. It is just another brand extension in RL’s 50-year history.

Following the millennial demand for experience, the new Way Forward for Ralph Lauren may be through creating social meet-ups based on food and drink. The company already has a track record of delivering successful food service through its global hospitality portfolio encompassing Ralph’s, RL Restaurant, The Polo Bar and Ralph’s Coffee & Bar.

The bet is that customers can experience the Ralph Lauren brand in new more personal ways rather than just trying on clothes. While I remain skeptical about the coffee connection, the company clearly is looking to engage and connect the Ralph Lauren lifestyle with customers in a more experiential way.

Personally, I am rooting for Messrs. Lauren and Louvet and the new team to revitalize the brand and set the company on a path to greater success in the future. I am encouraged, as others should be, by the company’s “Way Forward Plan” and its back-to-basics approach for the brand’s iconic heritage, all the while looking to new ways to meet and engage today’s experientially driven customers. Critical to success will be innovative design, dynamic omnichannel strategies and open two-way communications both inside and outside the company.

Clearly there won’t be any “double, double” short cuts or quick fixes for the company. The “toil” will involve dogged hard work, putting one foot in front of the other and learning and adjusting to get out of its “trouble” and find a profitable Way Forward. We can hope that Louvet with his disciplined P&G training and experience could be the right leader at the right time for the evolving Ralph Lauren Corporation.



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