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Ralph Lauren’s dismal quarter shows it remains too reliant on department stores

August 4, 2020, 3:00 PM UTC

Ralph Lauren reported poor first-quarter results on Tuesday that showed it will need to take more of its destiny into its own hands to weather major retail storms like the current COVID-19 crisis.

The fashion company reported weaker than expected sales, with North America revenue seeing the biggest decline, falling 77% to $165 million. In Europe, revenue decreased 67% and in Asia, the furthest market along in terms of recovering from COVID, it was down fell 34%.

Shares plunged 8% in mid-morning trading as Ralph Lauren reported revenue collapsed 65.9% year over year to $487.5 million, well below Wall Street forecasts.

In North America, business at its own stores fell 77%, and dropped 93% in its wholesale business, which includes sales to department stores like Macy’s and Nordstrom, clients that slammed the brakes on placing orders as their own sales collapsed. Yet unlike other fashion brands, Ralph Lauren didn’t get much relief from its online business, which rose a scant 3% during the quarter. (It fared better overseas.)

“A lot (of that) is simply down to Ralph Lauren being out of tune with patterns of demand during the pandemic and therefore not being a digital destination,” Neil Saunders, managing director of GlobalData Retail, wrote in a research note.

This adds urgency to Ralph Lauren’s ongoing efforts to sell more of its merchandise via its own stores and its own web site, which was not operating early on in the pandemic, and less through wholesalers.

The company did get dinged by the broader environment for fashion, with a bit of relief from its home goods business. The pandemic has led to fewer occasions like big weddings, more working from home and more caution about discretionary purchases, hurting not just Ralph Lauren, but many higher-end fashion brands.

This year alone, retailers from Lord & Taylor to Tailored Brands to Neiman Marcus have filed for bankruptcy protection. Ralph Lauren has a strong balance sheet which precludes that possibility as of now, but the company acknowledged it needs to reinvent its business, even as it has spent the last few years on a turnaround.

Ralph Lauren said that in the coming months, it will evaluate its “long-term operating structure to align with our evolving strategic priorities.” That means rethinking areas such as how it organizes its teams, its corporate office real estate and where it sells its products and its overall portfolio of brands, meaning Ralph Lauren could significantly curb its presence in some markets and increase in others.

“There’s an opportunity to reset in this environment, as we look at new consumer behaviors and the retail landscape,” Ralph Lauren CEO Patrice Louvet told Bloomberg News in an interview.

The company also pledged to expand the diversity of its staff, making moves such as interviewing two candidates from underrepresented groups for every leadership position, Louvet said on the company’s conference call. Ralph Lauren wants to have people of color make up 20% of the company’s global leadership or more by 2023.