Ralph Lauren’s Way Forward: A Move Toward Demand-Driven Supply Chain
Ralph Lauren takes steps to stay relevant in the digital era by enhancing its supply chain efficiency.
Digitalization in Retail
Digitalization has significantly impacted the retail consumer experience as well as the industry’s management of supply chain. Competition has radically increased with innovative entrants to the market. The leading twenty-five retailers in the United States witnessed a 2% decrease in market share from 2009 to 2015, accounting for $70 billion in sales[i]. Many of these newcomers are highly adaptable to trends by keeping low inventory levels. Zara, for example, leads the “fast-fashion” industry by using personal digital assistants to track demand and has a cycle of four to six weeks from design to stock.[ii] [iii] Companies without strong demand tracking systems experience significant inventory build-up.
The Ralph Lauren Problem
In 1967, Ralph Lauren created a line of men’s ties out of the Empire State building.[iv] Over the next fifty years, it expanded into a multi-billion dollar corporation offering clothing, home décor and fragrances.
Between 2013 and 2016, Ralph Lauren’s stock price plummeted nearly 50% from $188 to $99.76.[v] Analysts pointed to a primary issue of excess inventory. Ralph Lauren had an inventory lead time of fifteen months, creating three major problems.[vi] First, the company was less able to react to changing trends. Second, holding excess inventory is costly. Over this three-year period, inventory grew by 26% while sales grew by only 7%, significantly hurting the profit margin.[vii] A final consequence was frequent discounting of low-demand products in inventory and a shift toward outlet stores, not only reducing the profit margin, but also diluting the luxury brand image.
The Way Forward
On June 7, 2016 management presented its “Way Forward Plan” to turnaround the company. The CEO at the time Stefan Larsson proposed short-term cost-cutting initiatives, including supply chain enhancements. With supplier collaboration, the lead time would be reduced to nine months, with an eight-week test phase, allowing the company to be more receptive to customer demand. To accomplish this goal, they planned to resort to fabric platforming, a production strategy used by “fast-fashion” companies in which they buy fabric in bulk before receiving designs.[viii] They will also close fifty stores and undergo significant layoffs. Savings will be used to revamp their e-commerce presence in 2018 and to use a platform managed by Salesforce.com for digital operations.[ix] Because 30% of the company’s products accounted for 70% of sales, longer term, the company also intended to refocus on core brands. [x]
Source: Ralph Lauren’s “Way Forward Plan”
A Ways to Go
In Q1 of fiscal year 2018 Ralph Lauren reduced its inventory levels by 31% and the number of discounts consequently fell. [xi] The company also closed 20-25% of underperforming stores.[xii] Sales continued to fall and notably e-commerce sales fell by 10%. In February 2017 Larsson stepped down as CEO. In July the company hired his successor and its first Chief Marketing Officer to transition toward a demand-driven supply chain and promotional strategy.[xiii]
Ralph Lauren needs to further streamline its supply chain. In the short term the company should prioritize the development of its new digital platform and invest heavily in predictive analytics to better assess consumer demand. In the next ten years, the goal should be to establish an automated, fluid process of stocking inventory based on big data, and be able to adjust production weekly using a constant flow of information. This integration of demand with the physical processes should cut labor costs, minimize the necessity for costly safety stock, and further reduce inventory lead time.
Despite its iconic brand, in the long term, will Ralph Lauren remain competitive against massive companies like Amazon which have far greater access to consumer data? Is it too late to catch up to more nimble organizations that have been investing in digital and inventory management systems over the past decade?
(Word Count: 800)
[i] Retail Industry Undergoing Massive Disruption. The Wall Street Journal, 4 Nov. 2015, deloitte.wsj.com/cio/2015/11/04/retail-industry-undergoing-massive-disruption/
[ii] O’Marah, Kevin. Zara Uses Supply Chain To Win Again. Forbes, 9 Mar. 2016, www.forbes.com/sites/kevinomarah/2016/03/09/zara-uses-supply-chain-to-win-again/2/#22317a817df0.
[iii] Christiansen, Bryan. Handbook of Research on Global Supply Chain Management, PryMarke, 2015, p. 193.
[iv] Ralph Lauren Through the Years. The New York Times, 29 Sept. 2015, www.nytimes.com/interactive/2015/09/29/business/Ralph-Lauren-career.html.
[v] The Main Facets Of Ralph Lauren’s Turnaround Plan. Forbes, 1 Aug. 2016, www.forbes.com/sites/greatspeculations/2016/08/01/the-main-facets-of-ralph-laurens-turnaround-plan/#324bf9d9507b.
[vi] The Main Facets Of Ralph Lauren’s Turnaround Plan. Forbes, 1 Aug. 2016, www.forbes.com/sites/greatspeculations/2016/08/01/the-main-facets-of-ralph-laurens-turnaround-plan/#324bf9d9507b.
[vii] The Main Facets Of Ralph Lauren’s Turnaround Plan. Forbes, 1 Aug. 2016, www.forbes.com/sites/greatspeculations/2016/08/01/the-main-facets-of-ralph-laurens-turnaround-plan/#324bf9d9507b.
[viii] Halzack, Sarah. Big Changes Are Ahead at Ralph Lauren. The Washington Post, 7 June 2016, www.washingtonpost.com/news/business/wp/2016/06/07/why-big-changes-are-ahead-at-ralph-lauren/?utm_term=.5156adb5a41d.
[ix] Hoi-Nga Wong, Stephanie. Ralph Lauren Is the Latest Fashion Victim in a New Era for Retailers. Bloomberg, 4 Apr. 2017, www.bloomberg.com/news/articles/2017-04-04/ralph-lauren-is-latest-fashion-victim-in-new-era-for-retailers.
[x] The Main Facets Of Ralph Lauren’s Turnaround Plan. Forbes, 1 Aug. 2016, www.forbes.com/sites/greatspeculations/2016/08/01/the-main-facets-of-ralph-laurens-turnaround-plan/#324bf9d9507b.
[xi] Ganesan, Gayathree. Fewer Discount Help Ralph Lauren Beat Estimates. Reuter, 8 Aug. 2016, https://www.reuters.com/article/us-ralph-lauren-results/fewer-discounts-help-ralph-lauren-beat-estimates-idUSKBN1AO1DE
[xii] Ralph Lauren Reports First Quarter Fiscal 2018 Results. BusinessWire, 8 Aug. 2016, http://www.businesswire.com/news/home/20170808005748/en/Ralph-Lauren-Reports-Quarter-Fiscal-2018-Results
[xiii] Ralph Lauren Names New Chief Marketing Officer. Reuters, 16 Feb. 2017, https://www.reuters.com/article/ralph-lauren-moves/ralph-lauren-names-new-chief-marketing-officer-idUSL4N1G14CK
Very interesting!
I think you laid out the background perfectly. The graph of “Ralph Lauren’s share price movement” you added says it all. It emphasizes the problem and makes the stand out.
It seems Ralph Lauren is already making some short term changes but that may not be enough. I hope that as you suggested, they will also adjust their inventory using a constant digital flow of information, and so hopefully it will not be too late for them!
Fascinating. It’s amazing how many companies have been caught flat footed by the supply chain changes that are allowing fast fashion to take off. As you point out, holding excess inventory and then having to pump it into discounters is a death spiral for a brand like Ralph Lauren that’s trying to maintain a premium image.
I wonder if there will be consolidation in the fashion industry as a result of these supply chain changes and fast fashion? It strikes me that the best way to compete with the access to data that Amazon has would be to roll up a number of brands like Ralph Lauren into a holding company that’s better able to monitor macro trends, and would also offer supply chain enhancements through scale efficiencies.
Such an interesting read! Thank you!
Digitization and the rise of fast fashion has polarized the retail industry. On the one hand you have companies emphasizing the “fashion” component and reorganizing their supply chain and inventory management to bring the latest trends to market at the lowest price. On the other hand, you have “legacy” and “heritage” brands who have emphasized the brand and/or quality aspect of their product and looked to communicate this brand identity through charging higher prices.
Ralph Lauren seems to fall under the later category – with a narrow suite of products sold at a higher price. Yet, what is interesting in the case of Ralph Lauren is that their staple and most iconic product is their Polo t-shirts. Unlike a leather handbag or silk dress, the quality aspect of a cotton t-shirt is difficult to defend. As such, adopting a fast fashion strategy would seem to dilute the brand equity, particularly if it implies creating products at a lower priced entry point.
Additionally, the fashion strategy in the luxury space among the US retailers seems to be somewhat crowded with Michael Kors and Coach filling this gap. Given this, I think Ralph Lauren should double down on the “brand” aspect and continue to invest in its brand equity. This will allow it to create a differentiated product from other retailers selling via Amazon as consumers look to buy the brand, not the product itself.
This essay was very interesting for me!
Intuitively, I would think that Ralph Lauren would not be affected by the problems that you mentioned because they are a high end brand and hence, they would have more loyal customers than other retailers.
However, reading your essay made me realize that even for companies with strong brands and high end products digital initiatives, especially customer data analytics, are super important. In a context where information is widely available, companies can’t afford the risk of making decisions based on intuition or subjective matters, otherwise their competitors will use data to precisely meet customers’ demand.
To your question about competition with other retailers such as Amazon, because Ralph Laurent has the advantage of its brand, I feel they can invest in some initiatives to increase their databases and collect more data relatively easily. For example, they can create loyalty programs in which the customer can have either discounts on their purchases. The beauty about loyalty programs is that customers have to register to earn the discounts, allowing companies to collect data. This can even come with a bonus of increasing revenues, since customers will have more motivations to purchase products. Thus, my concern is not collecting the data, but how will Ralph Laurent develop its internal capabilities to analyze and generate insights with the data, creating relevant inputs for their supply chain. This takes time and investments, but in order to remain competitive and optimize supply chain, it seems the right path to me.
Great read! One thing that stands out to me that Isabel started to touch on above is that Ralph Lauren isn’t trying to be “fast fashion”. When I think of the RL brand, I think of classic, timeless styles. While they have some high-end more fashion forward pieces in their line, so much of their line seems like it would hardly change year over year. Going after an aggressive, data driven model with a company / brand that really resonates as a classic staple seems like a mismatch to me. I think there are ways to produce and sell (i.e. e-commerce) smarter without forcing a heritage brand into a data space they don’t fit in.
I agree with you that maintaining a certain level of scarcity is important for a brand like Ralph Lauren, which relies more on its upscale image than on reflecting the latest runway trends.
I’m not necessarily on the same page regarding the threat posed by Amazon and other e-commerce platforms. Certainly Ralph Lauren ought to revamp its e-commerce presence, but this does not necessarily preclude the brand from partnering from high-end online retailers such as Net-a-Porter. While Ralph Lauren would not be able to collect customer data from sales through an external web site, perhaps big data is less important for a company that is less focused on a 4-6-week fashion cycle, and more focused on luxury basics.