Ralph Lauren CEO Patrice Lovett and his executive team took to the podium last week for RL’s first investor presentation since 2018. It took four years to prepare, and was a massive event that lasted about four hours and was backed by a presentation of nearly 200 pages.
The bulk of the time and pages were devoted to the achievements of the company, of which there were many. Less time was spent outlining an updated strategic growth plan, called “The Next Great Chapter: Accelerate.”
Lovett promised: “Our clear and selective strategies are expected to generate sustainable long-term growth and value creation – backed by our strong balance sheet and operating discipline – as we cement our position as a leader in luxury lifestyle.”
It wasn’t until the last 30 minutes of the presentation that Jane Nielsen, COO and CFO, took to the stage and detailed forecast numbers: a steady 8% currency increase for fiscal year 2023, followed by a single medium to high compound annual growth rate – No. until 2025.
Additionally, the company aims to increase operating margins north by 15% thanks to savings of $400 million in cost of merchandise and operating expenses. Marketing spend as a percentage of revenue will be reduced by 7% as well.
Timing may be everything when it comes to achieving Ralph Lauren’s three-year goals. Having built what Lovett describes as a “fortress foundation” and with “strong momentum to unlock more potential,” he’s confident the company has the resilience to move forward even as the waters “cut off.”
It may all depend on whether the company is having a slight problem due to the changing economy or if it is a tougher good deal. But Ralph Lauren has found a safer haven now that he has saved $700 million in “brand diluted” revenue from wholesale and discount stores and is back to true luxury.
However, the recent recession has proven that the luxury goods market is not immune to economic volatility, dropping by 9% from 2007 to 2009. But Lovett is confident the company can withstand, even rise above whatever the economy throws at it.
Among the company’s achievements over the past four years are the following:
Younger, higher value clients
Since 2018, the company has successfully brought 20 million new high-value, younger customers directly to the consumer. This includes a 38% increase in full-price DTC customers since 2019 alone and they are active as one in four have shopped from RL in the past year.
The brand’s ambition is growing with 74% of consumers now considering RL a luxury brand as the brand’s top choice among next-generation consumers over a range that includes Calvin Klein, Tommy Hilfiger, Lacoste, Burberry and Gucci. Consumers are attracted to the timeless quality of the brand, compared to others.
RL has an edge with the next-generation customers it cultivatesโone in three U.S. consumers grew up wearing Ralph Lauren. This extends its life expectancy value as long as it stays with the brand. And it could succeed if it continues to offer more value for money, which has grown 7 points since 2020.
Retail
RL has completely restructured its retail network over the past four years. Most importantly, it has pulled out of two-thirds of low-value wholesale accounts in North America and reduced off-price retail exposure by 50% to bring that channel back into a “true avenue of liquidation,” according to Bob Ranftel, the region’s chief executive officer for North America.
The move, along with its capture of more spenders, resulted in a 64% increase in average order volume. He also notes that multi-channel customers spend four times as much.
It has added 450 full-price and franchise stores globally since 2018 that includes a variety of formats, including flagship stores and smaller stores under 10,000 square feet. Reports now indicate that direct-to-consumer business accounts for 63% of revenue.
250 new stores are scheduled to open over the next three years, including 200 in Asia, 40 to 50 in Europe, and 15 to 20 in North America.
Asia will be a major focus of retail expansion in the next three years across both stores and its digital ecosystem. Its strategy in China will be clustered in six major cities: Beijing, Shanghai, Chengdu, Shenzhen, Hong Kong and Taipei.
North American outlet stores get special treatment, too. In many places, these are customers’ local RL stores and the goal is to allow those value-creating customers to also interact with Ralph Lauren’s luxury.
โWe are elevating this physical environment. We are elevating the product offering, assortment and service model. When a consumer enters this store, we want them to feel inspired,โ explained Ranftel.
Strong digital ecosystem
โWe believe connected retail is the future,โ said Janet Sherlock, Executive Director of Digital and Technology. โThis is a huge opening for us because it gives us the flexibility to interact with our customers wherever they are, especially the next generation. She continued, describing the digital ecosystem rather than supporting the company’s operations.
Sherlock reports that Digital has delivered on its promises since the last investor day. It added over $1 billion in revenue (20% compound annual growth rate), versus the promised $500 million. Digital penetration doubled and operating margins increased by 850 basis points.
Finally, digital sales now generate 26% of the company’s revenue, including RL owned and operated site, and partnerships with pure digital plays, such as Asos, Farfetch, Mr. Porter, and their wholesale.com shows.
By 2025, you expect digital to reach a third of the company’s revenue at a compound annual growth rate (CAGR) of low to medium teens. It will leverage digital technology for international expansion, build its home business, expand and apply social commerce, and grow into a metaverse with digital goods and NFTs.
With its deep reserves of customer data, it will use AI to anticipate needs, customize local product groups, and customize customers.
With the goal of connected retail โto create episodic experiences for the physical, digital, and virtual worlds,โ Sherlock sees the potential for new revenue streams when the metaverse becomes a reality.
A timeless luxury classic
Describing eternity as the essence of the Ralph Lauren brand, Product Manager Halide Allagos said, “Timeless style transcends trend. It never goes out of fashion season after season.”
RL’s return to the classics will be a major driver of customer life extension. She said consumers look for products as investments with value that accumulate over time.
Currently, 70% of revenue is derived from its classic core product offerings along with seasonal color iterations of those classics. At the same time, this classic and timeless approach is being introduced into new categories such as outerwear, which now generates nearly 10% of revenue.
The home also got the classic treatment, which has grown 50% from last year and extends beyond linens and bedding to furniture, dining, rugs, lighting, decorative touches, and gifts.
Her women’s work is targeted for special attention because the RL brand is unobtrusive in her wardrobe. Women currently make up the majority of customers (56%), buying across many different categories, while women’s clothing accounts for less than 30% of RL’s business.
The company regards handbags and accessories as an important introduction to the women’s fashion market, in keeping with its timeless creed. It can be worn for every occasion from weekend to weekday, sporty to casual, and even special occasions.
Its women’s business is expected to achieve low double-digit growth through 2025, with the Polo women’s brand leading the way.
โConsumers can take advantage of the breadth of our products with our beautiful place in the casual high-fashion epicenter,โ Alagรถz emphasized.
Ralph Lauren Luxury Rose
At the end of the presentation, Ralph took to the podium to recall his 55-year journey after presenting his idea of โโrelationships with his boss at the time. “The world isn’t ready for Ralph Lauren,” said the President, who wasn’t impressed with the twenty-something idea, and Ralph went on to prove him wrong.
More than any investor in the room owes more to Patrice Lovett and his passionate team who took the company from where it was in 2018 to what it is today.
“I admire the team and you,” Ralph said. “You did a great job and put this company in the right place.”
The company underwent a radical transformation under Lovett’s leadership. No doubt when he and the team were crafting this presentation, it looked like hard work was behind them. But the world is changing again as the fragile economy hangs in the balance.
The next three years will not be an easy journey as it appeared before, but one thing is certain: the company has strong, steady hands guiding it over the choppy waters ahead.
