Ralph Lauren Reorganizes Business, Cuts Workforce by 15 Percent
Wall Street liked what it heard from Ralph Lauren Corp. on Tuesday as the company revealed plans to step up the pace of its transformation — which includes a 15 percent cut in its workforce.
The fashion group’s shares climbed 5.4 percent to close at $75.04 on the New York Stock Exchange Tuesday — although, like most brands and retailers in this pandemic era, its shares are still well below their 52-week high of $128.29.
Lauren said Tuesday that it would accelerate its Next Great Chapter plan that aims to deliver long-term growth and value creation. As reported last month, the $6.2 billion company began a strategic review to support future growth and profitability and create a sustainable cost structure. The review included three initiatives: The evaluation of team structures and ways of working; real estate footprint and related costs across distribution centers, corporate offices, and direct-to-consumer retail and wholesale doors, and the group’s brand portfolio.
As part of the review of its headcount, Ralph Lauren plans to cut its global workforce by about 3,600 employees by the end of fiscal 2021, which is expected to result in a gross annualized pre-tax expense swing of about $180 million to $200 million, with savings realization primarily beginning in fiscal year 2022.
During the pandemic, the company has had furloughs, but this is the first time it is having layoffs.
As a result of the workforce reduction, Ralph Lauren expects to incur total estimated pre-tax charges of about $120 million to $160 million. In addition to the actions revealed Tuesday, the company expects to take additional steps to implement its fiscal 2021 strategic realignment plan.
Over the past two fiscal years Ralph Lauren has moved to elevate its brands, which the company said has seen marked progress. As part of its Next Great Chapter plan, the company aims to attract a new generation of consumers; energize core products while accelerating high potential, underdeveloped categories; drive targeted expansion; lead with digital, and operate with discipline to fuel growth.
“The changes happening in the world around us have accelerated the shifts we saw pre-COVID-19, and we are fast-tracking some of our plans to match these — including advancing our digital transformation and simplifying our team structures,” said Patrice Louvet, president and chief executive officer. “These steps will enable us to progress our brand elevation journey and deliver Ralph’s vision in today’s dynamic environment — inspiring our consumers around the world and creating value for all of our stakeholders.”
As far as the organizational structure, the company plans to consolidate its global marketing and branding functions under David Lauren, who is vice chairman of the board, chief branding and chief innovation officer. He will once again add marketing responsibilities. Jonathan Bottomley, chief marketing officer at Ralph Lauren, will be leaving the company.
David Lauren, who joined the company in 2000, had earlier been executive vice president of global advertising, marketing and communications. In 2016, under the leadership of Stefan Larsson, president and ceo, David Lauren was moved to chief innovation officer. Among his earlier marketing initiatives were introducing one of the industry’s first luxury fashion web sites; leading Ralph Lauren to be one of the first brands to create an e-commerce site optimized for mobile phones; introducing QR scan technology to the U.S. for fashion; launching the first shoppable 24×7 touchscreen windows at stores, and developing 4-D holographic fashion shows and in-store experiences in New York and London. He also organized the company’s global sponsorships of Wimbledon, the U.S. Open Tennis Tournament and Team USA at the Olympics.
The company declined to say which specific departments would be streamlined, except to say that it is simplifying team structures across the organization.
The company will also establish a new Consumer Intelligence and Experience organization, focused on leveraging consumer insights and predictive analytics to drive personalized consumer experiences at scale. In addition, it will reorganize the company’s corporate merchandising teams to combine core brand propositions, enabling greater connectivity and productivity. Ralph Lauren also continues to integrate Global Citizenship & Sustainability into all aspects of its business, making it a key responsibility for all leaders.
In the area of digital transformation, the company is changing how it operates by implementing new technology platforms across several key areas. This includes rolling out a cloud-based human resources and planning system globally, and elevating how it delivers for consumers through its Digitizing the Value Chain project. This is a company-wide initiative to simplify ways of working, better connect teams and digitize the product journey. The goal is to enable faster and more connected decision-making from product design to market. The company is also investing in technologies to help deliver a better consumer experience, with new digital capabilities that support areas such as omnichannel shopping, personalization, social commerce and augmented reality.
According to the company, these steps are expected to streamline the organization and simplify reporting lines, empower teams to make faster decisions and collaborate more easily, as well as support the delivery of one elevated Ralph Lauren vision and voice globally, while maintaining strong local capabilities and expertise.
Ralph Lauren, chairman and chief creative officer, said, “Over 52 years ago, this company started with a single tie and a dream that made it into a way of life. The timeless values we were founded on have propelled us on an incredible journey — one that has seen great challenges and amazing opportunities along the way. Through it all, our commitment to stay true to who we are, while evolving with the world around us, has helped to secure our future and our place as one of the world’s most beloved and inspiring brands.”
Analysts believe that Ralph Lauren is making the right moves in this environment.
Dana Telsey, ceo and chief researcher of Telsey Advisory Group, said Tuesday, “I think one of the things that’s happening coming out of the pandemic is everyone is learning to do business in different ways. In some instances, it’s about shrinking to grow.
“It isn’t about a big departure from what they’ve been talking about strategically — they’ve been talking about a multiprong restructuring plan and accelerating certain areas of focus, such as what they’re doing with the whole digital area and higher potential categories, like the home area,” Telsey said.
“I think essentially they’re realigning the head count and realigning the organization. I think they’ll also be looking at the real estate part of it, that’s still be announced. The longer this pandemic goes on and we’re in whatever this new normal that’s still evolving, I think expense structures, what the core of the business is, and where you want it to be in a year or two years from now, it’s positioning to get to the other side,” Telsey said.
Like most fashion companies, Ralph Lauren got hit hard by COVID-19 and has decided to take more of its destiny in its own hands. As reported, for the quarter ended June 27, Lauren’s revenues fell 65.9 percent to $487.5 million from $1.4 billion a year earlier. Net losses totaled $127.7 million, or $1.75 a diluted share, down from earnings of $117.1 million, or $1.47, a year earlier. The company achieved digital commerce comparable growth of 13 percent, with digital operating margin expanding more than 1,000 basis points compared with a year earlier.
In the most recent quarter, the company had $2.71 billion in cash and investments and total debt of $1.9 billion.
Ralph Lauren has made several moves to strengthen the brand, pulling it out of 200 wholesale doors, cutting inventories, raising prices and putting more of an emphasis on direct to consumer. On the earnings call last month, Louvet said, “The focus for us going forward is [direct-to-consumer] first.” After this comes digital commerce, through the firm’s own site and others.
At this specific time, no stores are closing, but the company’s store portfolio is always under review and the firm is looking at all leases to make sure it has the right fleet in the right areas The company’s store strategy is to expand in top cities in areas where it is understored, relative to its peers, particularly in Europe, the Middle East and Africa, and the Asia-Pacific region, and in neighborhoods where it sees consumers who are repeat customers and use the full omnichannel experience. The company opened new stores in Athens and Madrid in the past few weeks.
In April, when the pandemic first got under way in the U.S., Lauren himself said he would forego his entire salary for fiscal year 2021, in addition to his full fiscal year 2020 bonus. (Lauren’s salary and bonus last year were around $11 million.) Louvet’s salary was reduced by 50 percent during the crisis, and all the other 140 members of the executive and global leadership team reduced their salaries by 20 percent for the first quarter of fiscal 2021. In addition, the company’s board forewent their quarterly cash compensation for the first quarter of fiscal 2021.
While Lauren’s retail stores were closed in the spring, the company furloughed the majority of its store workers. As reported, Lauren’s store employees in North America were compensated when the stores were closed from mid-March and were paid in full through April 11. International store employees in regions where retail operations were required to remain closed received similar compensation. Following that period, all of its store employees where retail operations were suspended, as well as employees whose job were not conducive to continued remote working, were placed on unpaid temporary furlough through June. This included the majority of its store employees and a portion of its corporate employees in North America, Europe and select other parts of the world. These employees continued to receive regular employee benefits, including health benefits and any government assistance for those eligible.
Back in 2016, when Ralph Lauren introduced its Way Forward Plan under then ceo Larsson, the company closed 50 stores and eliminated around 8 percent of the workforce, streamlining multiple layers of management. That was on top of a five percent reduction of the workforce the previous year.
FOR MORE STORIES:
Ralph Lauren Reinventing in COVID-19 Crisis
Ralph Lauren Gives Furloughs, Pay Cuts to Navigate COVID-19 Impacts
Ralph Lauren Revenues Fall 65.9 Percent
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