Patrice Louvet believes he’s making progress in turning Ralph Lauren Corp. into a digital-first brand.
The firm’s president and chief executive officer told Wall Street analysts on Thursday — during a conference call after the company posted third-quarter results — that Lauren is shifting marketing investments to the channels that matter most to its consumers. Last week, the company named Alice Delahunt its first chief digital officer. As reported, her role is focused on elevating the firm’s global digital platforms, as well as enhancing the digital experience for consumers across all channels to drive customer acquisition, retention, value and revenue.
According to Louvet,“We are developing deeper knowledge of consumer behaviors and being more precise about how we engage specific consumer groups….In order to expand the brand’s reach globally and increase consumer demand, we are shifting to more digital and more social platforms with a focus on influencers and strategies that drive traffic to our e-commerce channels.”
For Singles’ Day in China, the company partnered with a celebrity Chinese model to introduce the polar bear limited-edition collection on Tmall. “This has attracted more than 100 million live views and impressions on TV and social media across China,” Louvet said. Further, the holiday polar bear campaign was integrated across the company’s product, digital media and sales channels through the inclusion of the polar bear across store windows globally, in video content on social media and through collaborations with influencers.
Other influencer and celebrity coverage in the third quarter with “dressing activity” included Gigi and Bella Hadid, Jennifer Lawrence, Blake Lively and J.Lo in the U.S., and actresses Fan Bingbing and Karen Mok, pop singer G.E.M. and singer and songwriter JJ Lin in Asia.
Louvet said, “We expect to build on the momentum we are seeing on digital platforms. Our Instagram followers are up 40 percent over the last year and our WeChat fan base is up 50 percent over the last three months. When it comes to influencers, we believe in investing in long-term relationships with those who have an authentic connection to the brand and influence the areas of culture that matter most to our audiences.”
The ceo said the company is also experimenting with “new channels to drive further engagement with the younger consumer. For example, we launched our first SnapChat activation as part of our create-your-own product customization promotion.”
For digital-specific initiatives, Louvet said, “It goes without saying that digital is critical to our future growth as the consumer continues to shift online. This shift is not only for purchases, but it’s a whole eco-system of touch points, from product research to product reviews and ongoing brand interaction through social media, digital marketing and digital-owned content.”
Underpinning the need for the creation of the chief digital officer post, Louvet said: “As a company, we are pivoting to a digital-first mind-set in order to position our business to win in the new digital world. On the e-commerce front, our strategy has three pillars: one, our directly operated web sites; two, department store web sites, and three, digital pure players.”
Even as it transforms its organization into a digitally driven one, Lauren on Thursday said it saw a 27 percent decline in e-commerce sales due primarily to a planned reduction in promotional activity and lower traffic. Louvet said on the call that the company is estimating its global directly operated e-commerce business will generate about $380 million of revenue in fiscal 2018.
For fiscal 2019, and “with our new site in place and the promotional pullback behind us, our goal is to start to build quality traffic and grow revenue on our U.S. site. The strategy for our digital flagship is to emphasize brand experience, develop digital content around ralphlauren.com that drives deeper consumer engagement and conversion, as well as offer more omnichannel services like pickup and return in store,” the ceo said.
He added that business on department store web sites is “healthy and growing,” and that the digital pure players are the “fastest-growing part of our e-commerce presence,” which also allows the company to attract younger consumers to the brand.
While Lauren managed to beat Wall Street’s estimates — adjusted diluted earnings per share were $2.03 on revenues of $1.64 billion, versus consensus estimates of $1.87 on revenues of $1.63 billion — investors weren’t thrilled with the 10 percent drop in same-store sales in the North American business. North America remains the firm’s most challenged market. Moreover, fourth-quarter net revenue is forecast to be down 8 to 10 percent.
Shares of Ralph Lauren closed down 2.5 percent to $111.51 in Big Board trading. The shares fell another 0.8 percent to $110.61 in early after-market trading.
Key initiatives, in addition to the digital front, include evolving the product assortment. Analyst Jane Hali of Jane Hali & Associates noted that while the company is headed in the right direction for digital, as well as appealing to a younger audience, “the merchandise is not trend-led.” In a research note issued just prior to the report on earnings, Hali said, “We feel they need to be innovating in styling and not remain so focused on the classics.” One example she provided was the denim assortment seen at the Polo Ralph Lauren Prince Street store in Manhattan. While there was some key trending detailing, Hali also said her team didn’t “notice any updates in their denim when it comes to stretch innovation.”
J.P. Morgan analyst Matthew R. Boss maintained his “neutral” rating on the firm’s shares, with a price target of $118. He noted that the quarterly report had ammunition for both “bulls and bears” of the stock.
From a credit perspective, Moody’s apparel analyst Mike Zuccaro said, “Ralph Lauren continues to make progress with its Way Forward plan….However, 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.”