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 more than 13,500 retail locations worldwide, including many upscale and mid-tier department stores (Macy's contributes 25% to RL's wholesale revenue). It operates 490-plus Ralph Lauren and Club Monaco retail stores worldwide as well as 580-plus 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: Retail, Wholesale, and Licensing.
The company's Retail segment, which generated more than 50% of total sales in fiscal 2016 (ended April 2, 2016), 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.
Wholesale (45% of sales) sells Ralph Lauren products to major department stores and specialty shops throughout North America, Europe, Asia, and Latin America.
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.
New York-based Ralph Lauren operates in the US, Canada, Europe, Japan, South Korea, China, Southeast Asia, and Latin America. The Americas accounted for more than two-thirds of sales in FY2016, while Europe and Asia generated 21% and 12%, respectively.
Sales and Marketing
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, Latin America, the Middle East, and Asia.
Some 44% of its licensing revenue in FY2016 was earned from four licensing partners: Hanesbrands, Luxottica Group, Peerless, and L'Oreal.
Ralph Lauren spent $280 million on advertising and promotions in fiscal 2016 (ended April), compared to $275 million and $256 million in fiscal years 2015 and 2014, respectively.
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.
The company's sales dipped 3% to $$7.4 billion in fiscal 2016 (ended April) mostly as its wholesale sales in the Americas fell 6% with lower sales across all of its major apparel and accessories businesses due in part to a decline in foreign tourist traffic in major metro areas. Retail sales fell by less than 1% as comparable store sales fell by 3%, though e-commerce sales picked up. Licensing revenue increased by 4%.
Sales declines combined with increased restructuring charges in FY2016 caused RLC's net income to slide 44% to $396 million. The company's operating cash levels climbed 13% to $1 billion thanks to favorable changes in working capital tied to accounts receivables, prepaid expenses and other current assets, and accounts payable and accrued liabilities balances driven by payment timing.
Ralph Lauren reiterated its long-term strategy in 2016, pledging to expand into more international markets (especially in Europe and Asia); extend its retail business reach by opening more direct-to-customer stores and e-commerce; expand its accessories and other product and brand offerings; and invest more in its operational infrastructure to support a global reach.
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.)
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.