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Ralph Lauren Plots Retail Expansion

On Wednesday the firm reported a 27.6 percent spike in third-quarter profits that bested Wall Street’s expectations.

Ralph Lauren Corp. wants more stores for its brands.

This story first appeared in the February 7, 2013 issue of WWD.  Subscribe Today.

Taking a cue from the changing dynamics of consumer spending from the emerging markets, the company is also eyeing a retail expansion that would see freestanding stores for its Polo, women’s Blue Label, Denim & Supply and children’s businesses, both here and abroad.

“We’re articulating more clearly what we’ve begun to see as we go into markets such as the Middle East, Russia and Brazil where vertical stores are the primary retail channel,” Roger Farah, president and chief operating officer, told WWD on Wednesday as the company reported its third-quarter results.

The change doesn’t lessen the presence of Ralph Lauren freestanding stores, which are more focused on the high-end luxury Black and Purple collections. While the firm will continue to seek choice locations for Ralph Lauren stores, the additional freestanding stores means it will have a broader availability of sites to cull from to better reach the consumer. According to Farah, most malls in Asia have a wing devoted to kids, and while the firm will still be selective in where its children’s stores will be located, the store sites for that business will be easier to find than when trying to find the ideal real estate for its higher-end luxury Ralph Lauren stores.

 

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“In the past, Denim & Supply and children’s were distributed to department stores, and we would add a little of that in our own stores. If you go to Brazil and China, they don’t have the same department store structure, and [as an example] we were underserving the demand from the Brazilian consumer when in Miami, New York or London,” Farah said.

Also an avenue for future expansion is its accessories business, which is still under development.

Asked about freestanding accessories stores, Farah said, “I think theoretically it could be yes, but that’s a long way away from [us] wanting or needing to do that. [The priority is] making sure the accessories presentation in the existing stores is improved. For many years, accessories were primarily to support our apparel merchandise.”

As the company eyes new real estate sites, or those currently in operation, it’ll first consider a redo of the layout of the floors to better showcase its growing accessories business.

And the accessories business will be growing due to consumer demand.

Farah explained: “For the emerging market consumer, accessories doesn’t have to fit. It’s not seasonal for the most part and is readily identified as a status item, whether signature handbags or eyewear or iconic watches. In the emerging markets, those are the early signs of achievement and [of them] having arrived. Accessories is much more of a statement that can be seen by others.”

Shares of Ralph Lauren Corp. rose 5.9 percent Wednesday to close at $174.63 in Big Board trading following the firm’s report of a 27.6 percent spike in third-quarter profits that bested Wall Street’s expectations and projection for continued growth ahead.

Ralph Lauren, chairman and chief executive officer, said, “Our orientation as a design-led marketing and merchandising organization has enabled us to deepen our connection with our customers, particularly as we expand our portfolio of products and lifestyle sensibilities.”

For the three months ended Dec. 29, net income was $215.7 million, or $2.31 a diluted share, from $169 million, or $1.78, last year. Excluding $13 million in pretax impairment and restructuring charges in the quarter connected with the discontinuance of the Rugby operation, net income would have been up 33 percent to $224 million, or $2.40 a diluted share. The company beat Wall Street’s consensus estimate of $2.19 by 12 cents, according to Yahoo Finance. Even at the high end of estimates, it still beat that by one cent.

Total net revenues rose 2.2 percent to $1.85 billion from $1.81 billion. Included in that was a 2.3 percent increase in total net sales to $1.8 billion from $1.76 billion, which contained a planned decrease in wholesale sales of 2.1 percent to $733.9 million and a 5.6 percent gain in retail sales to $1.06 billion. The balance of revenues was attributable to a 1.2 percent increase in licensing income to $50.2 million. On the retail front, contribution from new stores and e-commerce operations partially offset lower sales at Asian concession shops and store closures connected with the firm’s Greater China network repositioning efforts. Consolidated comparable-store sales rose 4 percent.

For the nine months, profits grew 6.2 percent to $622.8 million, or $6.63 a diluted share, on a revenue gain of 1.2 percent to $5.3 billion.

The company said it expects fourth-quarter net revenues to rise by a midsingle-digit percentage, reflecting an 8 to 11 percent gain in retail revenues and wholesale revenues.

In the third quarter, the company also saw the growing importance of e-commerce platforms in extending its direct-to-consumer reach. The company now has e-commerce operations in 11 European countries, and recently launched sites for Ralph Lauren in Japan and Club Monaco in North America. Korea will be launched later this year, followed by China.

According to Farah, e-commerce will continue to play an important role with consumers globally. He explained that consumers often get product information online, and that due to “price arbitrage, since products are priced differently in different markets,” those that have the wherewithal to travel globally will pick and choose where to buy certain products.

While there may be differing consumer preferences or climates around the world, there is one thing that doesn’t change. “Our best-selling products sell well worldwide.…That’s more common than I would have guessed,” Farah said.