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Polo Ralph Lauren (RL)Stock (Fashion Industry Industry, Retail Industry, Apparel - Clothing Industry)
 Since its launch in 1967, Polo Ralph Lauren has grown into a premier global player in the design, distribution, and marketing of lifestyle products such as men’s, women’s and children’s apparel, accessories, fragrances and home furnishings. Polo Ralph Lauren has business three segments: Wholesale, Retail and Licensing with total revenues of $4.88 billion in fiscal 2008, an increase of over 13% from 2007.[1] As Polo has matured, it has moved away from the licensing end of its business in an attempt to gain more control over its product offerings and to maintain higher quality standards. Polo's recent investments in repurchasing licenses in Japan and Europe will play a large roll in determining global growth for the brand in years to come. Although moving some of its operations and brands from licensing to wholesale and retail will dampen the margins on these products, it gives Polo more control over its brands and no longer receives a portion of the sales from these brands but rather the entirety of these sales. Polo Ralph Lauren derives its success from its ability to leverage its luxury appeal across all price points without diluting its brand name. Ralph Lauren has become the top aspirational brand in America with a range of brand offerings from the premier Purple Label and Black Label brands to the economy Chaps brand offered at stores such as Kohl's (KSS). By leveraging its luxury image on its mass market brands, Polo Ralph Lauren is able to achieve relatively high margins across its high volume brands (in 2008 Polo earned a 54.1% gross margin and 13.4% operating margin[2]). Ralph Lauren offers also its buyers the possibility of upward mobility within the Polo Ralph Lauren hierarchy of brands. As a major fashion brand, Polo Ralph Lauren is subject to fashion trends. As a retailer, economic conditions play a roll in determining the amount of disposable income customers are willing to devote to their discretionary apparel purchases. However, as a luxury brand, Polo's sales are less vulnerable to economic downturns as other brands, as Polo's customers are typically from high-income and high net-worth backgrounds and are less affected on an absolute scale by economic downturns than customers from the middle and lower class. Polo has also had to adapt its wholesale business to meet new demands arising as a result of department store consolidation. In order to differentiate themselves, department stores are increasingly demanding that wholesalers like RL provide them with an exclusive private label brand. In February 2008, Polo partnered with J.C. Penney (JCP) to launch American Living, its first private label brand. The success of this brand will play a large role in determining the future of Polo's wholesale operations. In the first quarter of fiscal 2009, Polo continued to grow its business, as total revenue increased 4% to $1.11 billion. Same store sales for Polo's retail stores increased 3.9%, while online sales grew 20% in the quarter.[3]
[edit] HistoryWhile working as a salesman at Brooks Brothers in 1967, Ralph Lauren launched the Ralph Lauren brand using a $50,000 loan. From its first boutique in Macy's Inc. (M) Manhattan, Polo Ralph Lauren quickly grew into one of the worlds premier luxury brands with operations in Clothing, Accessories, Fragrances, Furniture, and even a Restaurant to its name. [edit] Business OverviewPolo Ralph Lauren's revenues topped $4.88 billion in fiscal 2008 (ended 3/29/08)[4]. Its operations fall under three primary categories: Wholesale, Retail, and Licensing.  [edit] Wholesale  Wholesale makes up the largest portion (57% in FY08[7]) of Polo Ralph Lauren's revenues. Ralph Lauren has strong relations with several department stores allowing the company to indirectly target a wide range of customers. Wholesale sales increased nearly 19% in FY08 to over $2.7 billion[8]. As Polo repurchases its licensed brands, a large portion of these sales are shifted to wholesale. One key area of growth in Wholesale could be the development of private labels with department stores, like the American Living brand Polo has launched in partnership with J.C. Penney (JCP). [edit] RetailRalph Lauren's retail stores focus on showcasing the 'World of Ralph Lauren' by offering a wide selection of luxury products to customers. The retail presence serves as a platform for Ralph Lauren to launch new lines and maintain brand strength. The retail segment accounted for 39% of the company's total revenue in FY08 as retail sales grew over 9.7% to $1.9 billion.[9] Ralph Lauren's retail segment operates through the chain of 313 retail and factory outlet stores, as well as the company's online store. In fiscal 2008, same store sales for the retail segment grew 5.8%[10], a key signal of strong growth as same store sales figures exclude sales from new store locations and are more reflective of true organic sales growth. Ralph Lauren views internet sales as a prime source of future growth (online sales grew 29% in FY07 and 26% in FY08) and accordingly is investing in improving distribution centers and customer service to increase scales. In keeping with this strategy, the firm acquired the remaining 50% of Ralph Lauren Media in 2007, the owner of www.ralphlauren.com. [edit] LicensingMany fashion designers license their products to third parties who independently produce and sell on a large scale while repaying the designer through royalties. Designer use licensing in order to achieve higher growth in the earlier phases of their business. While licensing provides the possibility of larger scales, it also reduces the control designers enjoy over the quality standards of their brand name. Licensing once represented one of the largest revenue sources for Ralph Lauren, but the company has moved away from this area of late by re-purchasing several of its licensed products. Licensing royalties for 2007 dropped 4% to $236M as Polo Jeans and Footwear were brought in house. Licensing revenues continued to fall in fiscal 2008, declining 11% to $209 million as the company repurchased Impact 21 Co., a Japanese sub-licensee, and New Campaign, Inc., a small American leather goods licensee. This move away from licensing reflects the maturity of the Ralph Lauren brand name, as the company grows and attempts to take greater control over its operations and brands.
[edit] BrandsPolo Ralph Lauren owns and operates several luxury brands that cater to a wide range of denominations. It offers Men's Clothing at a variety of price points from its super-luxe Purple and Black Label collections (where blazers are priced around $1,600 at Neiman Marcus or Saks (SKS)) to a gambit of more moderate brands including Polo Ralph Lauren, Polo Denim, Lauren Ralph Lauren to its economical Chaps Ralph Lauren (where blazers are priced closer to $200 at Kohl's (KSS)). In Women's Clothing, it offers Collection, Black Label, Blue Label, Lauren Ralph Lauren, Lauren Jeans Co., and Pink Pony. Other specialty brands such as RLX, Double RL, Rugby, and Club Monaco cater to special niches. Rugby and Club Monaco each have their own chains of retail locations, with 10 Rugby stores and 65 Club Monaco locations in operation at the end of FY08.[11] Polo Ralph Lauren also has a presence in the household segment with Ralph Lauren Home and Lauren Home. [edit] American LivingAs a part of Ralph Lauren's expansion plans, Polo Ralph Lauren's American Living line for J.C Penney debuted in 600 stores in February 2008 with plans to expand to all 1,048 J.C. Penney stores. With 50 merchandise categories ranging from apparel to home furnishings and a broad influence, the brand potentially allows Ralph Lauren to target a large demographic seeking high quality merchandise at lower prices. The private label partnership represents a significant opportunity for growth in the Wholesale segment for Polo, as the company could enter more partnerships with new brands with J.C. Penney (JCP) or other department stores. [edit] Trends and Forces[edit] Department Store ConsolidationIn recent years a wave of consolidation amongst department store chains has resulted in the emergence of a small number of major players like Kohl's (KSS), Macy's Inc. (M), J.C. Penney (JCP) and Nordstrom (JWN). These giant chains benefit from greater purchasing power and the ability to eliminate redundant physical outlets. As a result these chains hold greater sway in negotiating lower prices from wholesalers such as Ralph Lauren and are able to cut down on unnecessary expenditure. Unfortunately, this translates into lower wholesale demand and lower margins for Ralph Lauren. With increased competition, department stores must work to distinguish themselves by offering and private labels and exclusive brands. Private label brands are sold under a brand name of the retailer (which may be the name of the retail chain or separate, differentiated brand name) but produced by the wholesaler. Exclusive brands are marketed under the wholesaler's name but sold exclusively by the retailer. Ralph Lauren will need to learn how to navigate this new business model while avoiding any damage the the valuable Ralph Lauren brand name. The American Living line at J.C. Penney (JCP) that hit store shelves in February 2008 follows in the steps of the Chaps brand for Kohl's (KSS), in which Polo Ralph Lauren is responsible only for the design of product but J.C. Penney (JCP) deals directly with manufacturers and bears risks related to sales and possibly inventory. This is a potential source of growth for the Wholesale business as more partnerships with other department stores could significantly spur revenue and profits. [edit] Seasonal Sales PatternsPolo Ralph Lauren’s sales are affected by seasonal trends. Wholesale sales are higher in the second and fourth quarters while retail sales are higher in the second and third quarters. These trends result primarily from the timing of seasonal wholesale shipments and key vacation travel, back-to-school and holiday periods in the retail segment. Thus, a particular poor back-to-school selling period or a decrease in holiday spending by consumers can be especially dangerous for retailers such as Polo. [edit] Changing Fashion Tastes Effect Ralph LaurenCompanies in the retail clothing industry are subject to fashion trends. Seasonal changes in tastes pose a constant challenge to designers as they attempt to predict new looks. Failure to understand the rapidly changing tastes of consumers can be very detrimental to sales. This challenge is further complicated for Polo as it must predict the changes in fashion tastes across its eclectic mix of brands. [edit] Economic Downturns: Protected by Luxury Status?Consumer spending on fashionable goods such as Polo's products is discretionary in nature. When the economy struggles and consumers across the nation experience decreasing disposable incomes, consumption on fashionable goods often falls. However this relationship is very complicated and the effects of macroeconomic trends on luxury goods is particularly unique. Luxury goods such as the products sold under Polo Ralph Lauren's brands are targeted to customers from the upper class, high-income individuals whose absolute wealth and disposable income varies less than for middle- and lower-income individuals. Thus, when the economy's growth sputters, as it has in the second half of 2007 and early in 2008 since the subprime lending crisis and the ensuing credit crunch, the performance of retailers depends on their place on the luxury-necessity spectrum; luxury retailers are still able to achieve growth in times of temporary economic struggle because their customers are less affected by trends in the general economy. In the past few quarters of macroeconomic uncertainty and weakness, luxury retailers such as Polo Ralph Lauren, Saks (SKS) and Coach (COH) have reported strong sales results, while retailers of basic goods that target middle-income consumers such as J.C. Penney (JCP), American Eagle Outfitters (AEO) and Gap (GPS) have reported falling sales. [edit] CompetitionAs Ralph Lauren offers a wide range of brands across different price points, it faces a range of competitors across its brand offerings. The table below summarizes primary competitors for each major Ralph Lauren brand.
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