Ralph Lauren is clearly hoping that Patrice Louvet’s experience in the fast-moving beauty world can help him figure out the rapidly changing fashion landscape — although Wall Street appears to have its doubts.
As first reported by WWD Wednesday morning, the designer has named the Procter & Gamble executive as his new president and chief executive officer, effective July 17. He will also join the board of directors. Louvet brings nearly three decades of experience at P&G, most recently as group president of global beauty products, to Ralph Lauren Corp. and will report directly to Lauren, who will remain executive chairman and chief creative officer, and the board of directors. Louvet succeeds Stefan Larsson, who held the post for 18 months and left over clashing views on how to evolve the creative and consumer-facing parts of the business.
Despite Lauren finding a successor to Larsson relatively quickly, Wall Street didn’t respond well to the appointment. In a general down day for the overall stock market, shares of Ralph Lauren Corp. fell 1.6 percent to close at $72.75 in trading on the New York Stock Exchange. P&G stock closed at $86.26, essentially flat from its opening price of $86.22 on the NYSE.
Louvet’s successor at P&G hasn’t been named yet.
A 28-year P&G veteran, Louvet, 52, has a proven track record of improving and growing major global brands such as Gucci Fragrances, Pantene, Gillette, Clairol and SK-II. In 2016, his area of oversight contributed about $11.5 billion in revenues. Earlier, he served as P&G’s group president, global grooming (Gillette), and before that was president of P&G’s global prestige business where he oversaw a portfolio of 23 brands, including Gucci and Hugo Boss.
According to Lauren’s 8-K filing, Louvet will receive a cash sign-on bonus of $3.4 million. He will also receive a base salary of no less than $1.25 million and will be entitled to participate in Lauren’s bonus program, where he will have an annual target bonus opportunity of 300 percent of his fiscal year salary earnings, and a maximum bonus opportunity of 450 percent of his fiscal year earnings. Louvet will be granted an annual equity award with a value of $7.5 million.
In addition, Louvet will receive a one-time equity award with a target value of $9,193,000 on his effective date of joining. (It will be in the form of adjusted performance-based restricted stock units, performance shares and time-based Cliff Restricted stock units.) If Louvet voluntarily terminates his employment without good reason within the first year of employment, he must repay the sign-on bonus to the company.
There are other perks as well. The employment agreement provides an annual education allowance of $30,000 for each of his school-aged children, reimbursement for car service use for travel to or from his office, financial counseling and an annual executive physical. If the company terminates his employment without cause, or Louvet terminates his employment, he will be entitled to receive 400 percent of his base salary per year for a severance period equal to two years.
Executive search firm Spencer Stuart handled the placement.
A native of France and current resident of Mamaroneck, N.Y., Louvet acquired a fascination with American culture as a child when his family lived for four years in Princeton, N.J., where his father headed the U.S. subsidiary of a French chemical company. Now he assumes the reins of an iconic American fashion brand and one of the most successful in the world, yet one that faces challenges driven largely by the sweeping cultural industry vicissitudes of the past decade.
Ralph Lauren and its high-end competitors operate in a world of e-commerce, fast-fashion chains such as H&M and Zara, price sensitivity and a consumer base increasingly likely to divert disposable income from fashion purchases toward experiential buys and the ever-increasing wonders brought to market by the tech world.
The company will release fourth-quarter results today and previously said it expects consolidated net revenues to be down midteens on a reported basis. Last year, Lauren disclosed it would reduce its workforce by 1,000 and close 50 stores, two of the most high-profile in the last six weeks — Polo Fifth Avenue, opened just three years ago, and Greenwich, Conn., which opened in 2009. The company also disclosed a restructuring plan in April and said that it expects initiatives associated with that plan to conclude by the end of March 2018 and to result in annual cost savings of about $140 million with restructuring costs of about $370 million, mainly from employee severance charges, lease termination fees and inventory-related costs.
WWD chatted with Lauren and Louvet at the designer’s Bedford, N.Y., home on Saturday. The duo discussed the brand’s challenges and opportunities at this strategic moment for the company and the larger industry.
“This is a partnership,” said the 77-year-old Lauren.
As when Larsson came onboard, the house founder stressed that the hire should not be mistaken for an indication that, after 50 years, he’s winding down: “It’s not [me] stepping away. I want to bring in someone who could help me. It’s a big company. It’s $7 billion.
“This is about someone I trust and growing the business the proper way,” Lauren continued, returning to the word “partnership” several times, while noting past collaborators Peter Strom and Roger Farah, both instrumental in building the company.
Lauren cited “a wrong way and a right way” to grow a business: “You can tear it down or you can do it in a more intelligent way.”
He said Louvet’s global experience and calm, thoughtful demeanor indicate someone well-poised to embrace the latter approach. “Patrice brings a sophistication and maturity to the business that’s very important. He’ll be my partner. I don’t feel this company is at the end of the wire, it’s at the beginning,” Lauren said.
For Louvet, the move is a huge one after his long tenure at P&G, where he developed a reputation as a global brand expert and skilled business leader. “Frankly, this was an opportunity I couldn’t pass up,” he said. “I spent my entire career building brands ranging from Pantene to Gucci Fragrances to Gillette to Clairol to SK-II. That’s where my passion lies. Ralph Lauren is an amazing brand.”
An amazing brand whose two top executives are hyper-focused on improving the bottom line and developing new growth strategies. As for whether the Way Forward plan implemented by Larsson will continue, both men took a “what’s in a name” attitude. “Plans are there to be changed,” Lauren offered. “If the times move and things change, you say, ‘We can’t do this, but we can do this.’ I don’t think there’s any plan that’s not flexible.”
Louvet suggested a “forget the labels,” approach, noting that Way Forward’s core objectives — a focus on operational efficiencies and strengthening the foundation of the company — will remain, but that approach must coincide with growth. “As I engage with the team, we’ll be looking at what’s the next phase, where are operational efficiencies and what are the vectors of growth,” he said.
Not surprisingly, Louvet offered few specifics, having not yet “spent a day at the company.” He did acknowledge an intense focus on e-commerce. “The vision is ultimately that our web site is going to be our flagship. That’s the way to think of it.…It’s critical that the Ralph Lauren business be well-positioned. I think we would both say it’s a big opportunity today and we’re underleveraged in that space.”
It’s an area in which he has deep experience. Developing e-commerce, particularly in China, was a major priority at P&G where, he said, “we’ve been winning with the JD.coms of this world and the Alibabas of this world, or our own sites.”
For his part, Lauren was very open about the company having lost focus in e-commerce after a pioneering start in collaboration with NBC years ago. “We had great ideas. David [Lauren] started it. It was very successful…[but] there were other [areas] for growth. E-commerce was not what it was today. Twenty years ago, it was new.” Today, he said, the brand’s e-commerce suffers from prior neglect and is “very small and not as well done as it should be.”
In April, the brand confirmed it has hired Salesforce to help create an improved omnichannel experience for consumers. Salesforce will rework Lauren’s e-commerce business. “[Ralph Lauren] will move to a more cost-effective, flexible e-commerce platform through a new collaboration with Salesforce Commerce Cloud. The new solution is expected to deliver a more consistent customer experience across the global digital ecosystem, with an advantaged total operating cost,” a Ralph Lauren spokesperson said at the time.
Louvet arrives at his new position with an acknowledged lack of a substantial fashion background, a point criticized by at least one Wall Street analyst. “I think it would have been better off if he knew something about apparel and the American retail scene. Maybe he’s terrific, but I think it’ll take him a long time to learn and [get up to speed],” said the analyst, who asked not to be identified.
But Elaine Hughes, chief executive officer of E.A. Hughes, an executive search firm, was positive about Louvet’s hiring.
“The good news for most of these package goods people, the shift has happened where branding is so important, and they’re experts at that. They understand how to develop sustainable brands, more so than these flash-in-the-pan brands. The other thing is they’re all trained far better, coming out of packaged goods, in leadership and development of organizations with succession planning leadership, moreso than people who have historically come out of the wholesale or even the retail business,” she said. Packaged goods executives understand the need to collaborate with many groups of people to initiate their businesses, she said.
Hughes observed that many people who have grown up in the wholesale and particularly the U.S. domestic retail business don’t have a global point of view. “Any company, whether it’s a Ralph Lauren or the vertical retailers today, needs individuals with truly a global point of view in order to sustain their businesses. We’re still in an over-stored and over-brand environment here, and the only uptick to the businesses is an international expansion.
“The ones that don’t have that international experience, many times there are missteps in their execution overseas. They won’t have the sense of the cultural innuendos,” she said. “The hiring of Patrice is a very positive step for the Ralph Lauren organization,” said Hughes, who noted that Lauren has had terrific partnerships in the past, whether it was Peter Strom or Roger Farah.
Dana Telsey at Telsey Advisory Group, said while “we are somewhat surprised by Ralph Lauren’s decision to hire a veteran with a consumer products background, Mr. Louvet’s management experience and apparel track record of improving major global brands across multiple distribution channels appears to align with the company’s longer-term strategic objectives.”
“I recognize the things I know and I know what I need to learn,” Louvet said. “I am very determined to learn quickly. I also am very confident with the team that’s available and who I’ll be working with, and they know the industry well.”
He pointed out that several former P&G executives have had considerable success in the fashion industry, running through a quick roll call: Antonio Belloni, former president of P&G Europe, who is now group managing director at LVMH Moët Hennessy Louis Vuitton; Chip Bergh, former group president, global grooming at P&G and his predecessor at Gillette, who is now president and ceo of Levi Strauss & Co., and Stephen Sadove, a former president of Clairol Worldwide who’s the former chairman and ceo of Saks Fifth Avenue and now principal in Stephen Sadove and Associates.
Asked if he expects to operate at a much different pace going from packaged goods to fashion, Louvet said “no.” “In beauty, the pace is pretty intense. If you look at my years at P&G, about 20 have been in the beauty world. The pace there is not as quick as fashion, but it’s a lot faster than most traditional businesses you’ll find at P&G because you’re launching a new color, or a new scent. The rhythm has similarities.” Louvet maintains that the fashion and beauty sectors talk to the same customer, one who “doesn’t separate her hair from her dress from her shoes and her bag. She looks at herself holistically.”
As incoming ceo, Louvet sees his first task as immersion in and understanding of the Ralph Lauren culture. “Through all my conversations with Ralph, I’m really touched by how much he cares about the people,” Louvet said. “Yes, business is difficult, and yes, the conditions out there are challenging. But there’s a caring aspect to the culture that has really struck me from the get-go.
“People are the secret sauce, or the not-so-secret secret sauce,” he said of a recipe that “comes to life through teams that are energized and being supported.” To that end, Louvet described his leadership style as “servant leadership,” which he defined as not focused on driving one’s personal agenda but “on creating the conditions through which teams can leverage their full potential.”
Balancing the Ralph Lauren culture with particular challenges that require tough decisions such as store closures is never easy. “There are difficult choices. Closing a store is not an easy choice. Letting people go is not an easy choice,” Louvet said. He pointed out that the mind-set is not what the 50-year-old company is going to do for the next two years, but what needs to be done to celebrate 60, 70 or 80 years in business.
Lauren addressed the two recent high-profile store closures, explaining that in a brief time, the area around the Fifth Avenue Polo flagship at East 55th Street changed rapidly toward a more mass retail focus. Despite its beautiful location, the Greenwich outpost suffered from low traffic. “A lot of those customers shop in Manhattan,” Lauren noted.
As for division of top-management labor, Lauren said he and Louvet will each do what they’re best at. He will remain in charge of all creative — “a big job” — with Louvet “the head of all the operations; he’ll have a lot to do.” Lauren ticked off a litany: “a retail business, a wholesale business, a concept business of new ideas. We have restaurants. We have home. There are a lot of businesses that have great potential.”
Which is not to say either man believes in firmly defined job descriptions. Said Lauren, “I’ll ask Patrice anything — ‘Do you like this color? Do you want to do this?’ I don’t have a wall. We’re not going to ever have a wall. It’s really a partnership.”
Louvet’s international experience was a major attraction for Lauren. The incoming ceo sees major opportunity across Europe and Asia, particularly China. Yet the home front remains a major focus. “It’s very clear, “ he said, “we need to get the U.S. business back to growth.”
Turning to a favorite industry topic these days — Millennials — the executives mused on that most fascinating of demographics, and whether they even care about brands. “I personally think Millennials are very brand-conscious if you make the brand relevant to them,” Louvet said. He believes Millennials are looking for meaning. “They put a lot of value into where you come from, your provenance, what your story is, what you stand for and what your values are and whether you give back to the world.”
“They don’t trust some of the old brands,” Lauren added. “Bigness is not a very Millennial thing. They’re finding little places where they can feel, ‘Hey, I’m special.’”
Asked how, if accurate, that reality bodes for a behemoth public company, Louvet didn’t miss a beat. “I come from a $65 billion company, so at $7 billion, it doesn’t feel too large yet,” he said.
Lauren then elaborated on his premise. “It doesn’t mean they don’t want to buy nice things. But there’s so much product out there. They want special stuff. I found with our products, the more special we are, the better we are.”
As for the reality of product saturation, “That’s the issue,” Lauren said. “It plays back to companies that stand for something….[Today’s consumers] don’t need anything. They have all the choices and expensive is not really the answer. It’s style, charm and appeal and whatever’s happening in music [that appeals to them].”
Louvet concurred, bringing the conversation back to brand building. As a consumer, he said — already sounding like a Ralph Lauren stalwart — “you are buying into a brand, buying into a world, buying into a dream. You’re buying into an aspiration. It’s the company’s responsibility to capture that and deliver it to the consumer.”
The company’s responsibility is now Louvet’s own at an industry moment when new ceo’s, his predecessor included, are often given short performance windows. Does that thought give him pause?
“It gives me pause, but I’m confident,” Louvet said. “There’s always an element of risk in a change like this. I go in with eyes wide open. I think we spent enough time together with Ralph and the board. I think we both feel there’s a good fit and we’re set up for success. Now the proof is in the pudding. We’ll need to deliver, and I’ll need to deliver.”
Meanwhile, Louvet now leaves an executive gap at P&G. His departure comes seven months after the consumer goods giant sold most of its specialty beauty business to Coty Inc. for $11.6 billion.
“He left a very strong foundation for P&G to begin rebuilding consumer interest and engagement in mass beauty,” said Martin Okner, managing director at SHM Corporate Navigators, who added that during Louvet’s tenure he rationalized the portfolio and refined the company’s focus on leveraging innovations for growth.
P&G divested most of its beauty portfolio — including 10 fragrance licenses, Wella and Cover Girl — in a sale to Coty that closed in October. The company also sold the Dolce & Gabbana fragrance license to Shiseido and the Christina Aguilera license to Elizabeth Arden before Arden’s merger with Revlon Inc.
Those divestitures leave P&G with 12 beauty brands: Pantene, Herbal Essences, Head & Shoulders, Vidal Sassoon, Aussie, Rejoice, Olay, SK-II, Ivory, Safeguard, Old Spice and Secret.
For its latest fiscal quarter, P&G posted strong luxury skin-care sales with SK-II, which offset lower sales from Olay. In hair, P&G executives called out Head & Shoulders for strong sales, and noted the relaunch of Herbal Essences is going “extremely well.” Herbal Essences launched a Bio Renew line with more natural positioning recently.
“P&G’s beauty business is a bit more streamlined than it was and the results have been a little bit better,” Stifel analyst Mark Astrachan said last month. “It’s not the massive underperformer that it was five years prior to the Coty split, but it’s still not performing as well as it could or should.”
Industry experts suggested that Louvet’s successor would need to be well versed in consumer-packaged goods, but not necessarily beauty.
“Procter & Gamble’s mind-set is so unlike beauty,” said industry expert Allan Mottus. “Head & Shoulders, Pantene and those things can be run by a mass marketer who doesn’t know the beauty business, but things like SK-II really need people who have that background or expertise.”
“I don’t think it necessarily has to be a beauty person because really what they’re doing with this back-to-basics approach lends itself to anyone running high-profile mass-reach brands,” Okner said, noting for P&G, it may work better to promote from within. “As long as they maintain the integrity and the cadence behind product innovation, which is the key difference between beauty and household care brands in the P&G portfolio that have a much slower rate of innovation, somebody from another [P&G] brand could easily run the beauty business.”