A More Focused Ralph Lauren for the Pandemic

Ralph Lauren Corp. is working its way back and reorienting its business to gain as it comes out of the pandemic.

While losses continued for the fiscal second quarter ended Sept. 26, the company saw significant improvement from the first three months of the fiscal year and has been focusing on elevating its namesake business while becoming more connected with consumers. Now the firm is continuing its streamlining effort and transitioning Chaps to a licensed model.

“In what we can all describe as a pretty dynamic operating environment, we delivered sequential improvement,” said Patrice Louvet, president and chief executive officer, in an interview with WWD.

Losses for the second quarter tallied $39.1 million, or 53 cents a diluted share, and compared with earnings of $182.1 million, or $2.34 a share, a year earlier.

Revenues fell 30 percent to $1.2 billion, with North America down 38 percent $543 million, Europe off 25 percent to $359 million and Asia decreasing just 7 percent to $237 million.

Still, the three-month period showed plenty of progress from the first quarter, when losses totaled $127.7 million and sales dropped 65.9 percent.

Investors took a cautious approach, sending shares of the firm down 5 percent to $70.59 on Thursday.

The pandemic response, at Ralph Lauren and around the industry, has shifted for the day-to-day struggle of staying afloat and adjusting to new realities to positioning for a future that will be much more focused on linking digital and physical retail and connecting directly with customers. (Ralph Lauren added more than one million new customers to its direct-to-consumer platforms in the second quarter).

The move at Chaps — a roughly $200 million brand that will transition to a fully licensed business model — is just the latest piece of the puzzle.

Under the terms of a multiyear partnership, an affiliate of OVED Group’s 5 Star Apparel division will manufacture, market and distribute Chaps men’s and women’s wear in existing distribution channels, with opportunities to expand globally.

The deal starts on Aug. 1 after a transition period and will allow Lauren to focus all the more on its namesake business.

Licensing out Chaps was part of the broader strategic review that has the company cutting its global workforce by 15 percent, with about 3,600 positions being eliminated by the end of fiscal 2021, resulting in a gross annualized pretax expense swing of about $180 million to $200 million.

That mirrors the cuts seen at other companies that are trimming to sprint out of the pandemic.

“At this point in time, a little more than seven months into the crisis, I actually believe the company’s fundamentals are stronger than they were headed into the crisis,” Louvet said.

The coronavirus crisis has helped speed Ralph Lauren’s reset.

Louvet pointed to the oft-repeated business saying of “never let a good crisis go to waste” and said of the notion, “That certainly has been a driving factor for how we’ve been operating for the last six months, without being insensitive to the plight that people are going through in the pandemic.”

Ralph Lauren was already tightening up its business to build on its direct relationship with shoppers and boost its average retail prices.

Over the past three years, the company’s North American wholesale footprint and its business through off-pricers have both been cut in half.

“We’re really focused on strategically positioning the company for future growth and long-term value creation,” Louvet said. “We’re building on strong fundamentals and we’re certainly learning every day, there’s going to continue to be a certain level of uncertainty” in the overall business environment.

Right now, the business varies greatly by region.

“If you look at our Asia situation, everything is fine,” Louvet said. “Life is great. Our business is back to growth in Mainland China, same growth rates that we had prior to COVID-19, we’re up more than 30 percent there.”

The U.S. and Europe, where COVID-19 cases are spiking, are still struggling and Louvet said efforts to rein in inventory earlier in the year are now something of a constraint.

“What I feel very good about is the clarity of where we’re headed, the fact that we’re lining up as an organization against that,” he said.

A big part of that journey means building up the company’s ralphlauren.com business, which is profitable in Europe and Asia and on its way there in the U.S. A strong dot-com presence can then be bolstered by stores, helping the brand sync up with where and how customers want to shop.

“We are connected with you wherever you shop now,” Louvet said. And the customers Ralph Lauren is chasing now are big spenders.

In a sense, the brand is taking the business truism dictating that 80 percent of a company’s business comes from 20 percent of its customers and running with it, doubling down on those best shoppers with the help of artificial intelligence and advanced analytics.

“The 20 percent is getting the ultimate VIP experience, but in a modern way where everyone has access to it and it’s personalized as much as you as a consumer are happy to have it personalized,” Louvet said.

Ralph Lauren, executive chairman and chief creative officer, added: “The strength of our timeless brand and the values that have always been our touchstone continue to anchor us through this period of change and uncertainty. While this is a very trying time for the world, I am eternally optimistic about our ability to take the great learnings and creativity that have emerged from this time to become even stronger.”

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