Ralph Lauren Is Discovering How Hard It Is to Fix a Brand
There is no denying Ralph Lauren (RL) is discovering the hard work it takes to repair its once iconic brand.
The fashion company, trying to restore its luster after years of discounting and lower-end products cheapened its image, has been pulling out of many weak department stores and off-price discount stores and trying to wean customers off of the deals they’ve grown hooked to.
The result has been precipitous declines in revenue, much like those at the near-luxury peers of Coach-parent Tapestry (TPR) and Michael Kors (KORS) as they’ve undertaken similar exercises. Ralph Lauren said on Thursday that comparable sales at its own North American stores fell 10% during the crucial holiday season quarter, worse than the 7% drop analysts had expected, according to Reuters. Company wide, net revenue in the quarter fell 4.4% to $1.64 billion, with strong sales in China taking some of the bite out of its North American problems. Its shares fell almost 4%.
And more alarmingly, online sales fell 27%, a dramatic loss of business caused by the reduction of online sales events. The decline comes at a time when Ralph Lauren needs to get more customers to its e-commerce site as it looks to become less reliant on its wholesale partners.
“There is still a ways to go in its multiyear restructuring plan, as the impacts of exited business lines, inventory reductions, and pricing changes will continue to impact results,” Moody’s Apparel Analyst Mike Zuccaro wrote in a note.
It is notoriously difficult to get customers to stay interested in a brand after it takes away a good chunk of the discounting that fed top-line growth for years. Ask the department stores: Macy’s (M), Ralph Lauren’s largest single seller, has had to tread gingerly as it too looks to raise its image with customers. And the Coach brand experienced that in dramatic fashion, with nine quarters of negative comparable sales in North America ending two years ago. That resulted in Coach losing $1 billion in sales that will be hard to recover from before business resumed growth, albeit slowly. Michael Kors is still finding its new level.
To be sure, there are clear signs of improvement at Ralph Lauren. Average unit retail, a proxy for how much a retailer can get customers to pay for things, rose 4% in the quarter over a year earlier, discounting was down in every market, and adjusted gross margin was up 2.5 basis points compared to last year.
But as Ralph Lauren’s CEO of only a few months, Patrice Louvet, put it, “There is still a lot of work to be done.” And still a lot of sales declines to absorb.