In a surprising move, his company said it would close the high-profile Polo flagship on Fifth Avenue here — a store opened only three years ago and one seen at the time as key to relaunching the brand and expanding it into women’s wear. The store included the introduction of the Ralph’s Coffee format and also was adjacent to the designer’s first New York restaurant, the Polo Bar (which, thankfully for habitués, will remain open).
While the flagship’s high rent — sources said the 38,000-square-foot store cost $25 million a year — no doubt was a hindrance from the beginning, the rapid shifts in retailing since its unveiling further contributed to its demise. Consumers’ reluctance to spend on apparel; preference for appearances; the decline in tourism from key international markets like Russia and China, and the boom in online shopping have all hit Lauren — and almost every other brand out there.
The lease was signed in 2013 and for a 15-year term, sources said.
The challenges the company continues to face continue to worry Wall Street, which on Tuesday sent Lauren’s shares down 4.5 percent to $77.74.
The shares fell even though the closure and other changes would seem to be news Wall Street generally loves. Lauren said the closure of the Polo store and a plan to move all of the company’s brands to a less expensive and “more flexible” e-commerce platform will result on $140 million in annual cost savings. But before those savings begin to roll in, the company expects the restructuring move to cost $370 million, namely due to employee severance charges, lease termination fees and inventory related costs.
It’s unclear whether the company will be required to continue paying rent on the location while it remains vacant or if it would be allowed to simply break the lease for an agreed-upon fee.
The decision to close the Polo flagship will help the company cut costs by consolidating the Polo offering with Ralph Lauren’s downtown locations.
An unspecified number of store associates and related corporate staff are expected to see their positions eliminated in the move.
The Polo flagship in London, however, is believed to be doing well, and the company has not signaled any additional store closures beyond the roughly 50 doors already slated to go dark over fiscal 2017.
During fiscal 2016 the company closed 43 stores.
Even as it cuts back in some areas, Ralph Lauren said it will “invest in future growth” and “pilot new and innovative customer experiences,” particularly in the digital world.
Still, Stephen Stephanou, partner at Crown Realty Services, said the Polo flagship’s closure will “send shivers through landlords and retailers” in New York, considering Ralph Lauren’s size and stature and the number of other retailers closing stores.
When the Polo store opened in September 2014, it marked the beginning of a re-branding effort for Polo — skewed younger and with a broad product offering that now included women’s. The store was considered an integral part of a new growth platform for the company and its “modern,” youthful concept was expected to set the tone for future Polo store openings.
Until now, Ralph Lauren’s presence in its birthplace and home base of New York has seemed relatively immune from the company’s financial struggles and related restructuring, dubbed The Way Forward plan by Ralph Lauren’s former chief executive officer, Stefan Larsson.
But a restructuring calls for tough decisions.
“If you’re in cost-cutting mode, rethinking mode, facing a new situation, you have to be relentless about the places that are not providing the productivity you’d hope for,” said Craig Johnson, president of Customer Growth Partners.
He added that the Fifth Avenue address housing the Polo store “is just about the most expensive you can get anywhere,” leaving the volume the store needed to be doing similarly high in order to justify the cost.
“Here’s a company that is losing volume because on the wholesale side, I believe Macy’s is its biggest customer, and on the retail side, the performance of the full-price retail stores…the best way to say it is that it’s been mixed,” Johnson went on. “To my mind, [the flagship closure] makes sense.”
David Lamer, founder of retail advisory Core Brand Advisors, agreed that the closure makes sense from a cost perspective, but added “there’s so much more that could be done” in order to turn Ralph Lauren around.
“Ralph Lauren’s story is indicative of the industry,” Lamer said. “This is an awesome brand, but you have to embrace modern technology. If your brand isn’t entirely searchable and you’re not getting product to consumers when they want it, you’re failing.”
He pointed to retail’s disruptor du jour, Amazon, as something a brand like Ralph Lauren should consider not as a competitor, but as a technology representative of how consumers do and want to shop today, with its easy search and rapid-order delivery.
“If a brand like Ralph Lauren were able to implement technologies to better engage with the modern consumer, while at the same time streamline inventories to turn three times faster, that would be the benchmark for the industry,” Lamer added. “That would make people crazy for the products, passionate for the brand and wanting of its newness.”