NEW YORK, United States — Riding high off of a better-than-expected quarterly profit, the result of two years of streamlining and restructuring efforts, Ralph Lauren believes it is poised to return to growth, with ambitions to increase sales by $1 billion by 2023.
At the American fashion house's annual investor day, which took place on Thursday, chief executive Patrice Louvet and his team outlined a five-point plan geared not only to boost revenue, but to also add $300 million in incremental operating income. Louvet is also determined to dole out $2.5 billion in dividends to shareholders over the next five years.
How does the company, which generated more than $6 billion in 2017 despite being down slightly from 2016, plan to reach such lofty goals? The last few years at Ralph Lauren have been about cutting costs, spurred by former chief executive Stefan Larsson's 2016 "Way Forward" plan, which included closing 50 stores, eliminating more than 1,000 jobs and removing three lines of management.
However, Larsson exited the business one year ago after disagreements with Mr. Ralph Lauren, the company’s founder, executive chairman and chief creative officer, over "how to evolve the creative and consumer-facing parts of the business," according to a statement released by the company at the time.
For Louvet, who joined the business in July 2017, the next few years are about focusing on exactly that. The P&G veteran's goal is to woo the next generation of consumers and increase gross margins by improving the core product (which makes up 60 percent of overall revenue), amplifying under-penetrated categories (including women's, outerwear and denim) and operating "with discipline," which constitutes being more careful about discounts and promotions, more strategic when it comes to price, and cutting costs in creative-but-impactful ways.
One example of this is fabric platforming: At Ralph Lauren, different categories (i.e., home, kids, Polo, ready-to-wear) use different qualities of fabrics. Instead of each sub-brand buying its own fabric, Ralph Lauren is buying deeper into higher-quality fabrics, which brings down the cost and increases the quality of lower-priced products.
While many of these changes will be on the operations side, Ralph Lauren executives posited that the only way these efforts will be effective is if the product — and the marketing that delivers said product — is good enough for today's increasingly fickle consumer. Chief marketing officer Jonathan Bottomley, an ex-Vice exec who plans to increase marketing spend by $100 million over the next five years, outlined the Ralph Lauren archetypes — and how they differ in the Chinese market — as well as the consumer segments the brand believes it can win over. (Most notably, working professional men in their early-to-mid 30s, new-to-the workforce women in their mid-to-late 20s, and the creative class.) "This isn’t just a story about an increase in investment," Bottomley said. "It’s a story about a change in approach."
When it comes to allocating those extra dollars, "the print investment is going down but not disappearing,” he said. There will, however, be a big push to mine Ralph Lauren’s own life, the inspiration for the brand in the first place, as a source of content, from the restaurants — where the family regularly sits down to eat — to Lauren’s various homes and cars. (The past two runway shows — one at his garage in upstate New York where guests were surrounded by his automobile collection, another inspired by his home in Jamaica, were early examples of this approach.)
Chief innovation officer (and son of the founder) David Lauren, who spoke on the business’ tech-driven projects and sustainability efforts, mentioned the company’s US Olympics uniforms as another crucial marketing moment, calling the opening ceremony “the biggest fashion show in the world.”
The dream, however, “begins with the product,” global brands president Valérie Hermann said. The goal is for half of the company’s growth to come from core categories — think men’s shirting — and half from five undeveloped categories, which Hermann, whose luxury experience includes time spent as chief executive of Yves Saint Laurent, identified as denim, wear-to-work, outerwear, footwear and accessories. “These are all margin-rich businesses,” she said.
In women’s fashion, for instance, Hermann is broadening the product offering to include more polished weekday wear that complements the casual offering for which the brand is known. (In February 2018, she hired former Céline design director Michael Rider to head the women’s Polo business.)
As for denim: Lauren’s personal love for jeans — he wears them almost every day, even with a tux jacket earlier this week to accept a CFDA Award — suggests it’s a category where the brand could steal some marketshare. “Winning is [getting to] a half a billion dollars in sales,” she said. (Right now, denim is about 2 percent, approximately $124 million, of the overall business.)
But even if Ralph Lauren does everything right, a billion-dollar increase won't be easy in the current market. What the company did say is that, unlike rivals Tapestry, Inc. and Michael Kors, Ralph Lauren is not counting on acquisitions for its growth. The brand is stands on its own.