Speed, agility and price are coming to the fore at Ralph Lauren Corp.
Ralph Lauren has enviable brand cachet — and has had since the designer started selling ties in 1967 — and now chief executive officer Patrice Louvet is working to push that advantage, pumping more money into marketing to buff and elevate the carefully crafted image while delicately driving prices higher and expanding globally.
The strategy worked in the fiscal third quarter, when adjusted earnings of $2.86 a share came in well ahead of the $2.45 analysts projected, and pushed shares up 10.3 percent to $124.87 in midday trading.
But it’s still quite a balancing act and requires some seriously fast reflexes to navigate a difficult North American retail market and to counter the disruption of the coronavirus spreading from China to the rest of the world.
Louvet told WWD in an interview Tuesday that the brand, which successfully boosted prices at its outlet stores, was rolling out higher prices to the rest of its ecosystem in North America, where almost every fashion name has struggled to find just the right balance in a rapidly changing market.
“The price increases will show up on the floors really this week for our spring collection,” he said. “Based on what we’re seeing in the factory outlets, which is a pretty good consumer response, I expect to see the same thing in both our full-price stores and in the wholesale market.”
The average unit retail price across the firm’s direct-to-consumer network rose 6 percent in the third quarter, on top of a 9 percent increase a year earlier, and the firm plans to keep pushing higher.
Price increases are a way of countering reduced traffic in retail generally and — if it works over the long run for Ralph Lauren — could be a way for other brands to get out of their current funk, in essence recognizing that shoppers coming into the stores are their best customers and marketing and selling more to them.
Louvet said the boost to Ralph Lauren’s average unit retail was a reflection of the brand’s work to reduce promotions and to focus more on higher-value items like outerwear and fleece while also “strategically” increasing prices.
All of this is made possible by the Ralph Lauren brand, which the company has been supporting more, planning to push marketing spending to 5 percent of sales over the long term.
“Creating style that endures and inspires our consumers guides everything we do,” said Ralph Lauren, executive chairman and chief creative officer. “I am encouraged by how our global teams continue to deliver on this mission as we elevate our iconic brand all over the world.”
Third-quarter spending on marketing increased 16 percent compared with a year earlier, with its social media following topping 40 million, a SnapChat filter, a digitally targeted campaign dedicated to the Lauren sportswear business in North America and a video game, “The Holiday Run,” which has the Polo bear dashing through shopping districts around the world to collect signature products.
That push — along with new stores — helped the business grow globally.
Net profits for the three months ended Dec. 28 rose to $334.1 million, or $4.41 a diluted share, from $120 million, or $1.48, a year earlier. The disparity was driven in part by restructuring charges and tax reform. Total revenues for the quarter ended Dec. 28 increased 1 percent to $1.8 billion.
North American sales increased slightly to $911 million, with comparable sales up 4 percent in the brand’s brick-and-mortar stores and 6 percent on its web site. Wholesale sales in the market fell 8 percent.
In Europe, overall revenues were up 3 percent to $438 million. Asia increased 5 percent to $290 million.
The company has about 110 stores in China, including 37 opened during the quarter, and Louvet said about half of the total fleet was closed right now given the effort to stop the deadly coronavirus.
Agility will be key as the company weathers the outbreak and adjusts its supply chain accordingly, he said.
China still accounts for less than 4 percent of the company’s business, which the ceo said was “actually a blessing in today’s context.”
But Louvet said he remains “bullish” on continuing the brand’s expansion in the country.
“China continues to be a very important expansion opportunity and there’s no fundamental reason to change,” he said.
With the coronavirus now the big unknown for fashion — and the world — and the U.S.-China trade war in a ceasefire, the issue of tariffs, while still costly, has receded for now.
Ralph Lauren expects to book less than $10 million in costs for the newish tariffs on Chinese-made goods this year and another $12 million to $15 million next year as parts of the company’s supply chain move out of China.
That supply chain shift is another example of the kind of agility Louvet is trying to tap into as he seeks to make the business more dynamic.
And speed is only becoming more important at Ralph Lauren.
The brand piloted a new fast-track production model that saw it use digital product development to design, produce and deliver an exclusive fleece sweater to a key retailer in just 16 days in time for Black Friday.
Louvet told analysts on a conference call, “It was a pilot exercise for us…We’re not going to move our entire supply chain to 16 days. What’s key…is to understand what is the timing required to be well-positioned to win a specific category, in a specific geography, in a specific channel. So we still have kind of our nine-, six-, three-month lead times. And then there are some projects where we want to have this ability to react in the span of days.
“It’s a pilot, but I think it’s an indication also that our organization is becoming more agile, more aggressive in terms of how we manage timelines and also more creative,” he said.