Ralph Lauren’s CEO Stefan Larsson recently revealed the company’s turnaround plan, called ‘The Way Forward,” which is designed to revitalize the core brand, and to be more in tune with the consumer. Since hitting a peak of $188 three years ago, the company’s stock price has tanked almost 50% to $99.76 on July 25th. The revenue growth for the company has fallen from a healthy 7% in FY 2014, to 2.2% in FY 2015, and further, to a negative 2.8% in FY 2016, which ended in March. The main reasons for the company’s poor performance in recent times has been a result of a decline in department store sales, the rise of fast fashion retailers, and the company’s own out of date supply chain model. The company’s focus itself was diluted with numerous brands and a multitude of initiatives. This was recognized by Larsson, who listed the steps being undertaken by the company to overcome such problems, which have been highlighted below.
1. Closing Underperforming Stores
The management stated it would be cutting down its store count, by closing about 50 high end stores. This is being done in an effort to right-size its real estate portfolio, by shutting down the underperforming stores that don’t strengthen the brand or drive any profitable sales growth. The company has already closed 43 stores in FY Ralph Lauren Jackets, and with further closure, the resulting savings are expected to be $70 million.
2. Rightsizing The Organization
Larsson said the company will focus on restructuring the company to make it leaner, by eliminating three layers of management. Furthermore, ~8% of the headcount, or about a thousand jobs, will be reduced. Such a move would result in savings of $90 million in FY 2016 and $150 million in FY 2017.
3. Streamlining The Supply Chain
The key to the turnaround is fixing the supply chain, and improving the lead time from 15 months to 9, besides the introduction of an eight week test pipeline. This will enable the company to plan the inventory based on demand. Excess inventory problems have driven up discounting and transfers to outlet and off-price stores, which dilutes the brand value. This has also resulted in an inventory growth of 26% in the last three years, while the growth in sales in this period has only been 7%. Focusing on inventory will also help to boost margins in the future.