Ralph Lauren Corporation is galloping at a faster clip than when its namesake founder first entered the arena over 45 years ago. With golden mallet brands such as Polo by Ralph Lauren, Chaps, RRL, Club Monaco, and RLX Ralph Lauren, the company designs and markets apparel and accessories, home furnishings, and fragrances. Its collections are available at nearly 13,000 retail locations worldwide, including many upscale and mid-tier department stores (Macy's contributes 12% of RL's wholesale revenue). It operates 460-plus Ralph Lauren and Club Monaco retail stores worldwide as well as 540 concession-based shops-within-shops and 10 e-commerce sites. American style icon and founder Lauren is stepping down as CEO.
As part of its business, Ralph Lauren operates through three segments: Wholesale, Retail, and Licensing.
Wholesale, which generated 46% of total sales in 2014, sells Ralph Lauren products to major department stores and specialty shops throughout North America, Europe, Asia, and Latin America.
The company's Retail segment (52% of total sales) sells directly to consumers through more than 460 retail stores in North America, Europe, Asia, and Latin America; through concession-based shop-within-shops located primarily in Asia and Europe; and via its retail e-commerce channel in North America, Europe, and Asia.
Additionally, Ralph Lauren's Licensing segment (2% of total sales) sells unrelated third parties the right to operate retail stores and to use its trademarks in connection with making and selling designated products, such as apparel, eyewear, and fragrances in specified geographical areas for specified periods.
Based in New York, Ralph Lauren operates in the US, Canada, Europe, Japan, South Korea, China, Southeast Asia, and Latin America. The Americas account for about two-thirds of sales, while Europe and Asia generate 21% and 12%, respectively.
Sales and Marketing
Ralph Lauren spent $275 million on advertising and promotions in fiscal 2015 (ended March), compared to $256 million and $217 million in 2012 and 2013, respectively. The company sells its branded products worldwide through nearly 13,000 doors. Its primary wholesale businesses sells Ralph Lauren products to leading upscale and mid-tier department stores, specialty stores, and golf and pro shops, both domestically and internationally. Some 44% of its licensing revenue in fiscal 2015 was earned from four licensing partners: Hanesbrands, Luxottica Group, Peerless, and L'Oreal.
Ralph Lauren also sells its products through 10 e-commerce sites that are operated by wholesale customers. Ralph Lauren primarily wholesales menswear, womenswear, childrenswear, accessories, and home furnishings. Through a limited number of premier fashion retailers, the company peddles its collection brands worldwide. In North America, department stores are a major wholesale customer. In Latin America, wholesale products are sold in department stores and specialty stores. In Europe, Ralph Lauren wholesales to both department stores and specialty stores, depending on the country. Also part of its sales efforts, Ralph Lauren distributes products to licensed stores operated by franchisees in Europe and Asia.
Ralph Lauren Corp. (RLC) has enjoyed healthy revenue and profit growth over the past few years as it's continued to expand its retail business and international reach in the strengthening economy.
The company's sales rose by 2% to $7.62 billion in fiscal 2015 (ended March) with growth in all segments and across all regions. Most of the gains were driven by 4% net sales growth in its Retail business as it continued to open new direct-to-consumer stores throughout the year. The Wholesale business grew modestly in the Americas with increased demand for women's wear and accessories, while its Licensing sales also grew slightly thanks to higher apparel and accessories-related revenue and home licensing revenue.
Despite higher revenue in FY2015, RLC's profit reversed course for the first time in years. The company's net income fell by 10% to $702 million mostly because it spent more toward: supporting the growth of its retail business; facilities and infrastructure; advertising and marketing costs; operating costs associated with its Australia and New Zealand business acquisition; and investments in new business initiatives. RLC also incurred more in foreign currency losses as the Euro and Japanese Yen weakened against the US Dollar.
The company's operating cash also declined slightly in 2014 to $894 million due to lower cash earnings.
Ralph Lauren reiterated its long-term strategy in 2015, pledging to expand into more international markets; extend its retail business reach by opening more direct-to-customer stores; expand its accessories and other product and brand offerings; and invest more in its operational infrastructure. Toward its retail expansion goals, Ralph Lauren opened 11 new retail stores in FY2015 while also closing six stores that weren't performing.
With its eye on cutting operational costs and realigning its business with its long-term growth strategy, the company in May 2015 began reorganizing its channel and regional structure to a more streamlined, integrated global brand-based structure. Expecting a total cost between $70 million and $100 million in restructuring charges, some of Ralph Lauren's cost-cutting priorities during the year included a by-region-and-brand store and shop-within-shop performance review; a targeted review of corporate functions; and a consolidation of certain luxury lines.
Introducing its innovative new product lines in high profile events, Ralph Lauren has also been an official outfitter of the US Olympic and Paralympic teams, as well as the US Open events in recent years, counting on its associations to translate into millions of dollars in sales of event-branded apparel and accessories. In 2014, for example, the company unveiled its high-performance Polo Tech shirts on the opening day of the US Open, which featured sensors knitted in the product to read biological and physiological information. In 2014, RLC dressed the US Olympic team for the Winter Games in Sochi. Outfits for the US team for the 2016 Olympic Games in Rio are already in development. (The company also dresses the on-court officials at the US Open and Wimbledon tennis tournaments.)
Mergers and Acquisitions
In 2013, RLC brought several licensing arrangements in-house. In April 2013, it acquired the Chaps Menswear Business from PVH for about $18 million. In July, it bought the Australia and New Zealand licensed operations from its licensee for about $15 million.
In late 2015 CEO Ralph Lauren announced he was leaving the executive suite and named Stefan Larsson, the former head of Gap's Old Navy, as his replacement. Lauren will continue his involvement with his namesake firm as the chairman and chief creative officer.
Ralph Lauren began buying out its licensees several years ago. In 2011, the company acquired its South Korean wholesale and retail distribution operation from licensee Doosan Corp. for about $47 million. It bought out its licensing partner Dickson Concepts in a deal valued at about $37 million in 2009. Dickson was a licensee for the Polo brand in China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Taiwan, and Thailand. Ralph Lauren also acquired the children's wear and golf apparel inventory of former licensee, Naigai Co. Ltd., based in Japan.
To support other high-growth business opportunities and initiatives, Ralph Lauren in 2012 began to wind down its Rugby brand retail operations. As part of the closure plan, 13 of the company’s 14 global freestanding Rugby stores and its related domestic e-commerce site, Rugby.com, were closed during fiscal 2013, and the one remaining Rugby store was shuttered during fiscal 2014.