By
with contributions from Vicki M. Young, David Moin
 on September 29, 2015

“This is important to say: There is no toe in the water…I won’t be coming in two days a week.”

Ralph Lauren answered the easing-into-retirement question before it was asked, having just appointed Stefan Larsson to the position of chief executive officer, a post only Lauren himself has held in the near-50 year history of his iconic fashion company. When Larsson assumes the post in November, Lauren will remain executive chairman and chief creative officer. Jackwyn Nemerov, currently president and chief operating officer, will retire and become an adviser to the company.

Larsson had been global president of Old Navy since October 2012. Under his direction, the division has proved a strong point within the troubled Gap Inc. umbrella, with three consecutive years of profitable growth, including $1 billion added in sales. Prior to that, he spent 15 years at H&M, part of the senior management team that exploded that business into a global power with significant fashion resonance at the mass level.

“Stefan brings something special,” Lauren said. “Stefan has the sensitivity of design and of building a business and growing companies. That’s rare in our business. Usually, it’s one or the other.” But it was his impression that they hold similar views on the more ephemeral qualities of leadership that sealed the hire. Lauren had scouted around for ceo candidates for some time, a process that garnered a checklist of “a lot of prerequisites,” with a shared spirit at the top of the list. The right candidate would be “someone that has the spirit similar to how I built my company,” the designer said. “And it was spirit, because I certainly didn’t have the money and the history and the background. But I knew I had something.”

For Larsson, the appeal of leading Ralph Lauren Corp. into its next 50 years may seem evident, but he also experienced a like-minds moment during their first meeting. “I had dinner with Ralph, the most iconic American fashion designer,” he said. “Our meeting had a big impact on me; I think we started speaking dreams minutes into the dinner. Dreams and realizing that Ralph has made more in his life so far than anybody can ever dream of and here he is, speaking about growing the business, speaking about generations, speaking about stories. And I was just moved by that.”

To a powerful if not quantifiable extent, dreams are the stuff on which the Ralph Lauren empire was built. He knew he “had something” — ideas about not only how people should look, but how they should comport themselves, how they should live. To that end, Lauren is probably one of fashion’s great romantics. Yet romance alone doesn’t build or sustain a multibillion-dollar global enterprise. “I’m looking at what the next steps are and how to keep the company growing and what our future is going to be,” Lauren said.

The Larsson hire is the latest management change at the company since the departure of Roger Farah, previously chief operating officer, in May 2012. The company elevated Nemerov to president and chief operating officer, and subsequently tapped Valerie Hermann, previously of Reed Krakoff, as president of Luxury Collections, reporting to Lauren. Earlier this year, the firm named Chris Peterson, formerly chief financial officer, president of Global Brands, also reporting to Lauren. Hermann and Peterson remain in their roles but will now report to Larsson.

David Lauren, a Ralph Lauren board member and executive vice president, said in a statement that he was looking forward to working with Larsson, adding, “His commitment and passion to build great brands will be invaluable as we move into the future.”

Still, the company’s choice of Larsson is somewhat surprising  given he made his mark in the value, fast-fashion sector, not in luxury. But his international background will be key to Lauren as it continues to push global expansion, and his stint at Old Navy immersed him in another all-American fashion brand.

Gap Inc. recruited Larsson in May 2012 to orchestrate the international rollout of Old Navy, which began with Japan. He’d had experience in international openings, having brought H&M to the West Coast of the U.S. During his career, Larsson has been involved in product, merchandising, assortment development, planning and production, and store design and has a master of science in business administration jointly from the Hanken School of Economics and Business Administration, in Finland, and Jönköping International Business School, in Sweden.

He once told Gap investors, “We see customers demanding on-trend and current products. They want to be inspired more than ever before, want a more convenient experience, want to do other things with their time other than trying to find the right product.”

The strategy at Old Navy, he said, revolved around “becoming the first aspirational American brand in the value space.”

Larsson’s departure is a big loss for Old Navy, which was expected to start rolling out a new store design in the spring, involving smaller, more productive spaces where the retailer in its current format wouldn’t be able to open. The new design is expected to unveil a different customer flow, and a more aspirational feel. Gap Inc. said Larsson’s last day at Old Navy will be Friday and that a search for a new global president is already under way. Jill Stanton, executive vice president of global product, will lead the division in the interim, reporting to Gap Inc. chief executive officer Art Peck.

He is joining as Lauren’s ceo at a time when the company faces challenges. Given a series of Wall Street disappointments over its financial results, there had been rumblings since the summer over what Nemerov’s future role would be at the group. Her contract ran through April 1, 2017.

On Tuesday, the stock hit a 52-week low at $103.29 and ended up down 0.8 percent to close at $104.05 in Big Board trading. Wall Street seemed pleased about Larsson’s appointment. News of the management change hit the wires at 4:30, after the markets closed. Shares of Ralph Lauren rose 4 percent to $108.20 in after-market trading.

In August when the company posted first-quarter results, investors sent shares of the company down 1.5 percent to $121.50 even though it beat Wall Street’s consensus estimates for the period. That’s because while results beat both adjusted diluted earnings per share and revenue expectations, much of the gains were from better operating efficiencies since revenues and comps fell against year-ago comparisons.

The quarter before wasn’t so great, either. In May, the company said fourth-quarter profits fell 19 percent. While Ralph Lauren has been transitioning its operating model to its global brands initiative, same-store sales in the quarter fell 4 percent at the time, due in part to slower tourist traffic. Given the investments in the company’s stores and development of store concepts, plus the level of investments in brand reorganization, many do not see margin improvement in the near term.

Investors have been concerned about sales growth, while the company — like many apparel brands — has seen a negative impact on the bottom line due to currency fluctuations.

To be sure, the company has been making investments in its retail business, and has been working on a reorganization. The restructuring could save up to $100 million annually when fully implemented, including significant layoffs to reduce headcount by 5 percent. To streamline some of the operations, the company elected to create a singular Ralph Lauren Collection label for women and focus on the Ralph Lauren Purple Label for its high-end men’s wear line. It’s part of a series of moves to improve inventory turns and gross margins. The company also launched Polo Ralph Lauren for women, adding another leg to that well-established brand.

With so much at stake, Lauren sounded genuinely upbeat on Tuesday, speaking with a confidence rooted in been-there, done-that experience — and a long-haul track record of what by any standard is incredible success. “Business around the world has been difficult,” he said. “You can’t panic when the market changes its mind about something.”

While noting the essential responsibility to deliver value to shareholders, he cautioned that obsession with the short-term in the wake of economic vicissitudes can be destructive and is antithetical to the precepts on which he founded and grew his company. “I don’t go out and say: How much money are we going to make? I have proven in 50 years that the company has greatness and longevity. It’s passion for design, passion for business.

“I’ve been through it before,” Lauren continued. “I’ve been up and down and up. This is my life, this is what I do. I design, I create. But I also built a big business. I built one of the most successful businesses in America, and maybe the world.”

 

 

 

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