Chicago: At first glance Ralph Lauren and Stefan Larsson appear an odd couple.
Lauren’s estimated $6 billion (Dh22.03 billion) net worth is built on designs that created consumer aspirations of American country club luxury. Larsson, though similarly dapper, made his name in the mass market through successful tenures at H&M and most recently Gap’s Old Navy.
But the pairing at Ralph Lauren, which will begin in November when Larsson takes over as chief executive, should bring important lessons from the mass market, leaving 75-year-old Lauren to step back to a creative role.
“I’m quite excited about it,” said Daniela Nedialkova, an analyst at Atlantic Equities, of Larsson’s move. “He brings exactly what the company needs at this time.”
There has been a revolution in fashion retailing in past years across the globe as younger shoppers increasingly choose “fast fashion” clothes from retailers such as like H&M, Inditex’s Zara and Forever 21, over more sedate brands like Gap and J Crew of the US. Fast fashion companies copy catwalk looks and tend to use extremely efficient supply chains to release more collections each year than other retailers.
It is the know-how of improving such unsexy back-office areas as supply chain management and his global retailing experience that Larsson can bring to Ralph Lauren, analysts said, rather than prompting the luxury brand to take style cues from fast fashion upstarts.
“Ralph Lauren can’t be copying other people, it’s the brand that gets copied,” said Michelle Grant, Euromonitor’s global head of retailing industry research. “[It’s about] how much of those skill sets can be applied without degrading the brand.”
Larsson’s three years at Old Navy transformed that brand from being a weight around Gap’s neck to being its star, as the namesake brand struggles. In fiscal 2014 Old Navy pulled in $6.6 billion in sales, more than the Gap brand for the first time in four years.
Analysts put this down partly to Larsson’s focus on speed to market. The longer it takes to get from the sketching phase to the shop floor or website, the more vulnerability there is to changes in consumer tastes and the economy.
This tardiness can have a damaging effect on inventory and margins. Ralph Lauren’s earnings before interest, tax, depreciation and amortisation have fallen from 20 per cent of revenues in its 2013 fiscal year to an estimated 15.5 per cent for 2016.
The company has already been investing to improve its supply chain and technology to reduce the time it takes to get its designs to market, which one analyst said is longer than the industry average.
“Speed to market is critical and that’s what the fast fashion guys are really good at. If Ralph Lauren can be a bit quicker and flexible, it’d be great for margins and the top-line,” Nedialkova said.
Larsson arrives at Ralph Lauren as sales and profit are falling and as it moves to simplify its structure into six global brands — Polo, Luxury, Home, Club Monaco, Lauren and Denim & Supply — while expanding overseas and cutting $100 million in annual costs.
Sales at Ralph Lauren dropped 5.4 per cent in the three months to June as profits plunged 60 per cent to $64 million. This was partly because of restructuring but also reflected its decision to hold out against discounting, unlike some of its luxury rivals, Euromonitor’s Grant said.
Analysts support this strategy, arguing that it helps maintain Ralph Lauren’s brand equity over the long run at a time when the high-end image of rivals such as Michael Kors has taken a hit as they are seen as increasingly ubiquitous.
Ralph Lauren is looking to expand sales further in overseas markets, and Larsson’s new colleagues will hope he can replicate his success at H&M, where he spent 15 years. As head of global sales he was instrumental in expanding the Swedish company into a $17 billion powerhouse in 44 countries.
Analysts said Ralph Lauren should ideally have the key regions of the US, Europe and Asia each contributing 30 per cent of sales. At the moment, Europe stands at 20 per cent and Asia just 12 per cent. The group has been overhauling its Chinese operations since it took direct control of the business in 2010, after it was unhappy with the way that its licensee was handling the brand.
While Ralph Lauren is predominantly seen as a luxury brand, its Polo shirts offer a more affordable entry point, and it operates more of its cheaper outlet stores than retail stores. It does not disclose the breakdown of profits by division, though some analysts think its more affordable ranges could be more profitable.
Barclays analysts were encouraged by Larsson’s experience in “women’s fashion in the affordable segment, in which Ralph Lauren is attempting to build a larger business to complement its high concentration in menswear”.
However, not all are happy with the new Lauren-Larsson partnership. Robin Lewis, author of the Robin Report on retail strategy, cautioned that Larsson could drag the company away from luxury and even affordable fashion and towards the mass market.
“Larsson will simply take the brand closer to the greasy slope down to competing in the world of commodities, which apparel is becoming. Bye bye Ralph,” he said.
Most analysts find it hard to see that happening while Lauren, who built his company up on dreams of American luxury leisure, is still ultimately in control of the creative side.
Larsson’s moves will be watched closely by industry experts to see just how much mass market expertise stays in the nuts and bolts of the industry and away from the catwalk.
— Financial Times
