0  

Ralph Lauren

Shelby Gray Group #2

BUS 440.02 11:30

  1  

COMPANY OVERVIEW

Polo Ralph Lauren is a company specializing in the production of lifestyle products. Ralph Lauren

began forty years ago with simply a collection of ties and now has grown into an entire culture that has

redefined American Style. Ralph Lauren stands for providing quality products and inviting people to take

part in their dream. Ralph Lauren was the innovator of lifestyle advertisements and the first fashion

company to create stores to invite customers to participate in that lifestyle.

HISTORY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  2  

RALPH LAUREN SWOT ANALYSIS

   

   

 

 

 

 

Table 1

Ralph  Lauren  EFE  Matrix   Weight   Rating   Weighted  Score  

OPPORTUNITIES    

-­‐Boost  internet  sales   0.20   3   0.6  

-­‐Development  of  private  labels  within  department  stores  

0.16   3   0.48  

-­‐Development  of  philanthropic  campaigns  

0.13   2   0.26  

THREATS    

-­‐Fluctuating  exchange  rates   0.18   3   0.54  

-­‐Huge  competition  within  target  market  

0.13   2   0.26  

-­‐Dependence  on  licenses   0.20   4   0.8  

  1.00     2.94  

                    Table 2

  3  

In table 2, the external factor evaluation, the major opportunity for Ralph Lauren is boosting their

Internet sales. ‘Boost Internet sales’ is scored the highest. Most of Ralph Lauren’s sales are not coming

from their online sales, but increasing Internet sales is a good goal to keep up with technology and the

convenience aspect that customers love about online shopping. The next highest ranked opportunity for

Ralph Lauren to utilize is the development of private labels within department stores. Lastly, is the

development of philanthropic campaigns. Ralph Lauren has a foot into multiple philanthropies. Being

involved with charities creates an even higher appeal to customers and adds another positive connotation

to the Ralph Lauren brand name.

As far as threats, the greatest one facing Ralph Lauren right now is their dependence on licenses.

Ralph Lauren relies heavily on their licensing agreements and this causes them to face great risk on a

quarterly basis. Ralph Lauren does a lot of business internationally so the fluctuating exchange rates

around the world take a toll on Ralph Lauren’s revenue. The competition within the target market is not as

dramatic as a threat for Ralph Lauren because Ralph Lauren carries a very high amount of brand loyalty.

Ralph Lauren customers are usually customers for life.

  4  

Ralph  Lauren  IFE  Matrix   Weight   Rating   Weighted  Score  

STRENGTHS    

-­‐Selection  of  luxury  products   0.18   3   0.54  

-­‐Premier  global  player  in  lifestyle  product  market  

0.20   4   0.8  

-­‐Wholesale  division  for  department  stores  

0.16   3   0.48  

WEAKNESSES    

-­‐Overseas  business  revenue  loss  due  to  exchange  rates  

0.15   3   0.45  

-­‐-­‐Dependent  on  few  products  for  revenue  of  the  many  they        offer  

0.11   2   0.22  

-­‐Dependence  on  large  retail  stores  for  

generating  revenue  

0.20   4   0.8  

  1.00     3.29  

  Table 3

For the internal factor evaluation, the greatest strength of Ralph Lauren, is the status Ralph

Lauren has as premier global player in the lifestyle product market. Ralph Lauren has expanded all over the

globe and is continuing to open up stores in new countries each year. Following this key strength is their

selection of luxury products. Ralph Lauren started with strictly menswear but has since expanded to

become a well-diversified lifestyle brand. Lastly is Ralph Lauren’s wholesale division for department stores.

The Ralph Lauren division, sold at department stores, is affordable to most people and this is the line we

see people wearing most commonly. The high fashion items sold at the Ralph Lauren stores is not highly

accessible geographically or the monetarily to the average person.

Ralph Lauren’s greatest weakness is their dependence on large retail stores to generate revenue.

About half of Ralph Lauren’s revenue comes from their wholesale segment alone and this puts a lot of their

reliance on the retail stores that sell the wholesale division for Ralph Lauren. The next weakness is the

  5  

revenue lost in exchange rate fluctuations from overseas business. Last, is Ralph Lauren’s dependence on

a small percentage of the wide variety of products their company offers for generating revenue.

RALPH LAUREN COMPANY ANALYSIS

RALPH LAUREN CORE COMPETENCIES - International expansion - Wide selection of luxurious lifestyle products - Huge customer base due to relationships with numerous retail stores

RALPH LAUREN: Susta inable Compet i t ive Advantage Ability to use brand name to support exponential growth.

Table 4

Table 4 shows Ralph Lauren’s free cash flow for 2008-2010. Dividends per share are steadily

increasing throughout this period, along with the amount of free cash for Ralph Lauren. Increasing free

cash gives Ralph Lauren more cash on hand to use for acquisitions or other purchasing choices.

  6  

Porter ’s Ana lys is

Sub ject Rat ing Reason

Power of suppliers Low There is little risk for a company to not be able to provide a customer with the same product choices as another firm.

Power of consumers High With the large number of companies in the industry, customers have much leverage when choosing where to purchase their lifestyle products.

Entry of new competitors Medium The industry has lots of competitors that enter easily, however it is difficult to accomplish the global presence and brand awareness they Ralph Lauren has created.

Substitute products High Availability of substitutes is relatively high because there are a wide variety of brands and products with different price points in the industry.

Rivalry among competitors High There are a few giants in the apparel industry and they are constantly battling for market share.

COMPETITOR ANALYSIS

Ralph Lauren’s largest competitors in the apparel clothing industry are The Jones Group Inc. (JNY),

Liz Claiborne Inc. (LIZ) and Ann Inc. (ANN).

  7  

Susta inable Compet i t ive Advantage

Core Competenc ies

The Jones Group Expansion to create a wide variety in products for girls and women

1.Knowledge and experience in female fashion 2. Breadth of brands for females 3.Brand name appeal

L iz C la iborne Inc . Appeal to large market through diversity in brands and price points

1.Brand portfolio 2.Appeal to men and women 3.Potential for growth

Ann Inc . Ability to closely connect and build relationships with clients

1.Close client relationship 2.Knowledge of target market 3.Company mission

Table 5

Table 5 shows a comparison between some key characteristics for the apparel clothing industry.

Ralph Lauren leads in most of the categories aside from number of brands, where The Jones Group has 44.

This table demonstrates some of the specific reasons why Ralph Lauren is so successful in its industry.

  8  

Table 6

Another comparison between these three major competitors is seen in the competitive profile

matrix. Ralph Lauren’s high score shows it is leading the industry and the biggest laggard in the industry is

Ann Inc.

RALPH LAUREN FINANCIALS

Table  7  

  9  

Total revenue for Ralph Lauren is fluctuating due to the economic recession. Ralph Lauren’s focus

throughout the past decade has been on expanding internationally. They did not let the economic recession

impact their efforts throughout the past few years but the recession caused a slight dip in revenue. The

Chief Financial Officer for Ralph Lauren mentioned in an article that the company is already so well

established around the world that they did not have to make any internal changes to deal with the

recession and they felt fortunate in this. The increase in expenses is due to the opening of flagship stores

in Ralph Lauren’s expansion efforts.

Ralph Lauren’s cash fluctuations and the increase in assets can be attributed to the flagship store

operations. Ralph Lauren’s debt level is decreasing showing that the company does not operate with a high

level of debt. It is also important to notice the increase in stockholder’s equity.

Table  8  

  10  

RALPH LAUREN COMPARATIVE FINANCIALS

In table 9, the comparison most noteworthy is the comparison in free cash flow. Ralph Lauren is

leading the competitors in amount of free cash flow, while Liz Claiborne is trailing far behind the rest with

negative cash flows for the past three years. Ralph Lauren’s dividends/share have increased steadily in the

past 3 years.

Table  9  

Table  10  

  11  

This income statement (table 10) comparison shows Ralph Lauren leading the industry once

again. Ralph Lauren has the highest revenue, gross profit, and net income. The companies coming up last

are Liz Claiborne and Ann Inc.

Comparat ive Ba lance Sheet 2010

(numbers in thousands)

RL JNY LIZ

Total assets $4,648,900 $2,332,400 $1,605,905 Total liabilities $1,532,300 $1,194,200 $1,389,355 Total debt $282,100 $535,100 $516,146 Total shareholder’s equity

$3,116,600 $1,138,200 $216,548

Table 11

Ralph Lauren has the most in assets due to global expansion and size. Ralph Lauren has the

lowest debt as well, showing they are timely on paying their debts, and decreasing debt is a key focus for

Ralph Lauren.

RATIO COMPARISON

Table 12

  12  

Ralph Lauren took a few years to top the industry in this category but is recently at the top with

3.05. Ralph Lauren is extremely skilled in its capability to pay off its obligations. Ralph Lauren’s products

are turned into cash relatively quickly. The Jones Group also has a strong current ratio.

Table 13

Ralph Lauren’s low numbers in comparative debt to total assets shows that Ralph Lauren is

progressively becoming less dependent on debt to grow their business.

Table 14

Ralph Lauren is leading the industry in net profit margin, being the only competitor operating in a

positive percentage.

  13  

*ROOT PROBLEM: International expansion efforts have not yet taken advantage of all potential markets

STRATEGY #1- NO

Market Penetration. Ralph Lauren has been experiencing great success for the most part but their

revenue has been fluctuating over the past few years. Ralph Lauren could be more profitable with their

current products if they made greater marketing efforts. These marketing efforts could help them gain more

customers and bring in more revenue in future years.

• 180 day (6 months) advertising campaign featuring celebrity Blake Lively

• Lively has already been seen wearing Ralph Lauren

• 6 commercials total (each runs 3x per day for 30 days)= 540 commerc ia ls tota l

COST BREAKDOWN

TOTAL CAMPAIGN COST

Table  15  

Table  16  

  14  

WHY NOT?

• Too expensive. In the past Ralph Lauren has only spent $170M-$180M on advertising. There is no need

for them to nearly double their budget on this project.

• A campaign like this is not necessary for a brand that is already as well known as Ralph Lauren is.

• Ralph Lauren is currently very successful in the U.S., and this does not help solve root problem.

STRATEGY #2- NO

This would be a strategy of forward integration for Ralph Lauren. Ralph Lauren relies heavily on

external retail stores for generating revenue—Macy’s retail stores accounts for 19% of all wholesale

revenue for Ralph Lauren. Acquiring Macy’s would give Ralph Lauren control over these sales and reduce

some of the risk by displaying and marketing their products within the store however they like.

WHY NOT?

Macy’s is far too large to acquire and way too big of an entity for Ralph

Lauren to take on. Ralph Lauren does not have the money or resources to

keep Macy’s running as strong as it is now. Macy’s also caters to competitors

of Ralph Lauren and this would cause a conflict of interests. This also does

not address the root problem.

STRATEGY #3- YES

Market Development: Open Ralph Lauren flagship store in South Pacific region- Sydney, Australia.

Why Sydney?

•Population 4.6M

•Average 2-4M international visitors per year

•Host international sporting events

•Main economic hub of Australia

  15  

•Sydney provides 24% of Australia’s GDP (213B)

•City ranked 15th in world for net earnings

•Median age of Sydney 34 years

Sydney would be ideal for Ralph Lauren specifically because this is an outlet to

introduce the Ralph Lauren retail experience to South Pacific region of the world. This

strategy would utilize Ralph Lauren’s Sustainable Competitive Advantage and core

competencies. Expanding to Sydney helps solve Ralph Lauren’s root problem of

utilizing potential markets. This strategy fits in with Ralph Lauren’s expansion efforts

through creation of flagship stores.

This new flagship store would be located at the Westfield Sydney. It is a

premiere shopping center with approximately 250 retailers and is known as the premier

shopping destination in the country.

Table 17

TIMELINE YEAR 1 - Speak with leasing agent at Westfield Sydney

- Set up visit to check out leasing space - Plan design and construction of flagship store

YEAR 2 - Construction of interior of store - Aim to open up shop by end of year

YEAR 3 - Open store, focus on advertising and promotion - Begin planning locations for more Ralph Lauren retail locations in area

  16  

Table 18

Table 19

Table 20

  17  

Table 21

Table 22

The long-term effects of this strategy would result in a lower net income initially due to the

construction costs in the first few years. After the construction, however, there will be a significant increase

in revenue, gross profit, and therefore net income.

  18  

Table 23

The increase in shareholder’s wealth resulting from this strategy is a steady increase as time goes

on. There is around a $1,000,000,000 increase each year.

  19  

Ralph Lauren’s return on investment is unchanged in the first year due to the planning stages,

decreased the second year due to the construction expenses and from there starts on a steady increase.

Once the store is open and begins generating revenue, the return on investment will steadily increase.

COMPANY UPDATES

In 2007, Ralph Lauren had only a year left on his contract to run the design empire he founded.

Mr. Lauren re-upped his contract to go through March 2013, when he will be 73. His five-year extension

could be worth much more than $100 million.

Ralph Lauren is currently looking to reclaim the Asian market. They are currently buying back

licensing arrangements they have in this part of the world and are updating products for the region with

customization of product and color. Ralph Lauren is also looking to invest more internationally and less

domestically due to the current state of the economy. They find their domestic consumer spending is

declining in the luxury goods market. Ralph Lauren was fortunate to already have the spread of price points

domestically because this saved them in the recession and prevented them from having to lower prices or

rethink their distribution strategies.