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Ralph Lauren (US)

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Ralph Lauren is the world's most successful fashion designer, selling clothing and luxury goods worth around $12bn a year at retail. That's roughly a fifth more than his closest rival, Giorgio Armani. Not bad for a working-class kid from the Bronx who started out designing ties. The secret of his success has been careful control of the Ralph Lauren trademark, but above all an unrivalled understanding of the multiple strands that make up classic American style. His skill at blending these to design an all-embracing lifestyle has made him an eternal hero for his main market, Americans themselves, especially upwardly mobile Caucasian ones aspiring to WASP status. In fact, Lauren's biggest challenge by far is to broaden his audience, especially in Europe and Asia, where there is still a preference for homegrown designers.

Competitors

Ralph Lauren's most direct rival is Tommy Hilfiger, which markets a similar range of American-style leisurewear. See Clothing & Fashion Accessories for other companies

Advertising

Who handles advertising? Click here for Agency Account Assignments. The company declared advertising, marketing & promotional expenses of $280m in fiscal 2016.

Brands & Activities

Ralph Lauren is the world's biggest fashion brand, as well as one of the industry's most astute businesses, with a gold-plated reputation for skilled management and strategic planning. Key to this has been a determined policy of buying back control of successful licenses, thereby boosting sales and profits. Unlike other major players, the group has also consistently and successfully reinvented its brands to maintain their appeal among loyal customers while also attracting a new generation of buyers.

Ralph Lauren has come to epitomize what most people think of as American Style. Like no other American designer, he has successfully blended the country's best-loved homegrown styles, including Boston preppy, jazz age dandy, Western cowboy and college sports hero, to create an archetypal and all-embracing American lifestyle that extends from apparel to home furnishings. Unlike other designers (Calvin Klein, for example), Lauren has always avoided the sensational or outrageous in his marketing as well in his designs. No half-naked young men or teenage girls here. While this has occasionally led to accusations of dullness (usually from competitors), it has succeeded in making the brand accessible to all. Ralph Lauren has always stood for family values, and Lauren himself has been happy to back that up, citing his own long-lasting marriage as an example.

Even at its simplest level, the Ralph Lauren influence is breathtaking. As the first designer to sell lifestyle items (from 1983) as well as clothes, he arguably created an entire industry in the US, of which Martha Stewart later became the best-known (though more downscale) proponent. And no other contemporary designer can point to a clothing garment as ubiquitously popular as the simple polo shirt and say, "I did that".

Ralph Lauren's business empire is housed within Ralph Lauren Corporation, a luxury goods group which designs, markets and distributes a broad range of apparel, home furnishings, accessories and fragrances under the Ralph Lauren, Polo, Club Monaco, Chaps and related brandnames. The group's most successful line is menswear, accounting for around 45% of worldwide sales. Womenswear accounts for around a quarter, and children's clothing for a further 9%. Top of the range are the so-called "Collection Brands". Ralph Lauren Purple Label aims to provide "a contemporary take on traditional bespoke tailoring" for men, while Ralph Lauren Black Label is more stylised and slightly lower priced, with lines for both men and women. They are partnered by Ralph Lauren Collection, the company's high-end womenswear line as well as Black Label for Women. Other lines include upscale denim-themed outdoor apparel under the RRL (or Double RL) banner, and more affordable womenswear under the Lauren Ralph Lauren brand.

The Polo Ralph Lauren brand family comprises a number of slightly less expensive lines including Polo Golf, Polo Sport and RLX functional sports apparel. The latter lines have benefited significantly from promotional tie-ups with sporting associations. The group agreed a four-year partnership in 2005 with the US Tennis Association to make Ralph Lauren the official apparel sponsor of the US Open tennis championship until 2008, and with the All-England Lawn Tennis Association of Great Britain to provide official clothing for the Wimbledon tournament. The group also secured rights to become the official outfitter for the US team at the 2008 Summer Olympics in Beijing, and later extended that arrangement to cover the 2012 Games in London, and then Rio 2016. In 2011 a five-year contract was agreed with the US Golf Association to become the official apparel outfitter for the US Open Championships. Ironically, the group has a less amicable relationship with the US Polo Association (USPA), with whom it has clashed repeatedly in court since the 1980s over use of the Polo trademark. The USPA markets its own line of apparels and has attempted to launch fragrances also, using a logo that was more than a little reminiscent of Ralph Lauren's. As a direct result of those conflicts, Ralph Lauren dropped the Polo part of its corporate name.

Club Monaco and Denim & Supply are separate diffusion lines available in the US and Canada. Among other additions to the general leisurewear fold was Rugby, a separately branded lifestyle collection for a younger audience, sold through standalone stores and positioned as a successor to Polo, offering a preppy Ivy League sensibility. However sales were not as strong as anticipated, and the brand was discontinued in early 2013 in favour of a roll-out of Polo-branded stores selling men's apparel and accessories. American Living, launched in 2008, was a line of moderately priced apparel and home furnishings, launched exclusively in the US through JC Penney stores. That arrangement ended in 2012.

Since the 2000s, the group has steadily bought out a series of licensees around the globe, taking back direct control of its operations. In 2013, for example, it repurchased rights to the lower-priced Chaps Menswear range from partner Warnaco (now a unit of PVH). Branded underwear is farmed out to Hanesbrands. Several other lines including Chaps womenswear, Lauren and Ralph are lincesed to Peerless Inc. Having reacquired its once very popular Polo Jeans designer denim range from Jones Apparel along with Lauren and RALPH, the group discontinued the line in the US in 2006, claiming the brand was "over-promoted" and run-down. Polo Jeans is still marketed internationally. Chaps womenswear and furnishings are sold mainly through Kohl's stores.

Accessories are also produced under license, notably the Ralph Lauren Fragrances line (including Polo Sport, Romance and RALPH) by L'Oreal. There is also an eyewear range, produced under license by Luxottica. The group acquired Ralph Lauren Footwear Co, the licensee for branded footwear, in 2005 for around $110m. The business was previously owned by Reebok. In 2007 it also bought back the license to produce small leather goods, including belts and handbags. The Ralph Lauren Home range includes bedding and bath furnishings, furniture, fabrics, even specialist paints and decorative finishes. Several of these items were originally produced by licensees, but are gradually reverting to Ralph Lauren Corp as those licenses expire. The bedding and bath products license, for example, previously controlled by WestPoint Home, reverted in 2011 and is now managed inhouse. In 2008, the group launched Ralph Lauren Watches and jewellery in a joint venture with Richemont.

For the most part the company distributes its products to upmarket third-party outlets, such as department stores and specialty outlets, mostly in the Americas and Europe. In most cases, the products are sold through specially designed stores-within-the-store. The group has worked hard to reduce its reliance on department stores, but that channel still accounts for a huge proportion of revenues: Macy's alone accounted for 25% of the group's wholesale revenues in 2015 (or around $815m), and 11% of total sales. However the group has at the same time steadily expanded its network of directly owned outlets, either through launch or by acquiring third-party stores. By Spring 2016, the estate had grown to 493 stores and around 583 concessions, under four main brands of Ralph Lauren, Denim & Supply, Club Monaco and Polo. Around another 270 are operated by licensees in international markets. Directly controlled retail now generates 53% of group revenues, while wholesale supply to third-party retailers adds around 45%.

Financials

The reacquisition of licensees has significantly increased revenues in recent years, with topline growing by over 50% since 2010. Revenues for the year to March 2014 grew by 7% to a new high of $7.45bn, while net income climbed 3% to $776m. The best growth came from wholesale, up 11% to $3.5bn, while own retail grew 5% to $3.8bn.

However there was an unexpectedly sudden slowdown in performance from the end of 2014. For that year, revenues rose 2% to a new high of $7.62bn, but net income slumped by almost 10% to $702m. The group's own retail division contributed revenues of $3.96bn, wholesale almost $3.5m and licensing $169m.

The slowdown in performance took its toll on the following year. For the period to to early April 2016, revenues slipped 3% to $7.41bn, and net income plunged 44% to $396m. A large part of the decline came from restructuring charges, but there was also a 6% reported decline in US wholesale revenues. The effect on Lauren's share price was dramatic, causing a 50% slump by year's end. The stock has yet to rebound.

In 2015, as much as 63% of sales was still generated in the US (although that proportion is down sharply from around 75% in 2008). European operations are now almost entirely under direct control, and sales there have more than doubled since 2000, topping 21% of total revenues in ye 2015. In 2008, the group acquired its Japanese licensee in order to take full control of its operations in that key market as well. As a result, group sales from Japan have quadrupled. Similar acquisitions of licensees have taken place in other markets, especially in the Asia Pacific region.

Advertising for the diffusion or licensed brands is directed and produced by Polo Ralph Lauren's Global Brand Concepts unit. Ralph Lauren Media operates the group's network of lifestyle and ecommerce websites, as well as other multimedia activity. For several years, it was a joint venture between Polo Ralph Lauren, which owned a 50% shareholding, and NBC Universal (37.5%) and ValueVision Media (12.5%). Polo bought out its partners to take full control in 2007.

Background

Ralph Lifshitz grew up in the New York's working-class neighbourhood the Bronx, but was always determined to make something of himself. A snappy dresser, he changed his name to Lauren, drifted in and out of business school in his late teens, and held down jobs in department stores, at preppy clothing specialists Brooks Brothers and other companies before setting up on his own in 1967. According to legend he tried to persuade his then employer, a small garment company, to launch a range of wide ties, similar to the "kipper" ties then popular in the UK. When they refused, Lauren quit and set up his own business with older brother Jerry, under the name Polo Fashions, because that sport summed up the elegant and exclusive East Coast style to which Lauren aspired. Although US fashion at the time was for narrow and understated neckwear, Lauren unveiled a range of brightly coloured, wide designs. These sold well and the following year he launched a range of men's shirts, followed by a first menswear collection, combining traditional European tailoring with classic American style.

A confirmed Anglophile, Lauren borrowed heavily from English country style, and its US equivalent, the elegant refinement of F Scott Fitzgerald's jazz age. It was more than enough to attract the attention of New York department store Bloomingdales, who even gave into Lauren's demand for a separate branded concession area within the store, a first for any designer. Lauren also gave this boutique a distinct style of its own, a Hollywood vision of a colonial gentleman's club, complete with mahogany panelling, potted plants and brass fittings. His first womenswear line was introduced in 1971, adapting men's tailoring for women's suits. This range also featured the company's polo player logo for the first time, originally as a motif on the cuff of tailored shirts. That year, Lauren opened his own shop in Beverly Hills, becoming the first American designer to operate a standalone store, as opposed to department store concessions. In 1972 the company created a new fashion icon when it reinvented the traditional short-sleeved mesh shirt worn by polo players, and launched it in a vibrant rainbow range of 24 different colours. Previously only a niche item at Brooks Brothers, Ralph Lauren's Polo shirt became a men's leisurewear staple, adapted by literally hundreds of other companies.

The collection also received huge exposure in 1974 with the release of the movie The Great Gatsby, dressed entirely by Ralph Lauren. Although set in the 1920s, it did much to establish Lauren's clothing as the look for smart New Yorkers in the 1970s. That influence was reinforced three years later by Woody Allen's enormously successful movie Annie Hall. Diane Keaton's unconventional style in that film, based on Keaton's real life predilection for Lauren's designs, became a major influence on other designers. A year later, however, Lauren changed direction, launching a collection strongly influenced by cowboy "westernwear". The company also introduced its first fragrances, Polo for Men and Lauren for women.

In 1979 the company began taking advertising space in mainstream magazines for the first time, launching 20-page sections in upmarket glossies, which effectively functioned as catalogues for the full range. In the 1980s, the company launched its first retail outlet in Europe (in London), and launched the Ralph Lauren Home collection of designer sheets, towels and other classic American furnishings in 1983. In 1986, the company spent lavishly to convert the Rhinelander mansion, a palatial residence in New York's Madison Avenue, into its new headquarters and flagship store. In the 1990s, Lauren introduced his first sportswear range under the Polo Sport label (from 1993), as well as an even more exclusive tailored menswear range (Purple Label from 1994). Filling in the lower end of the spectrum, Polo Jeans launched in 1996. The group raised funding to expand by selling a 28.5% stake to Goldman Sachs for around $135m in 1994. Three years later, the company went public, making Goldman and Lauren himself a substantial profit. This led to the group's first significant acquisition, of Canadian clothing and home furnishings label Club Monaco.

Floatation also gave rise to a change in strategy. Although the company had run its London store since 1983, virtually all other activities outside the US, including its clothing lines, had been left in the hands of licensees. Lauren had concentrated on building the US business, and let the rest of the world look after itself. Wall Street welcomed the Polo Ralph Lauren Corporation at first, but quickly soured on the business when it missed an earnings forecast in 1998, pointing to what looked like an overdependence on declining US department stores. At the same time, the Lauren brand name had become too widely spread, with too many low-end products, mostly produced by licensees, undermining the perceived value of the brand as a whole.

As a result, since then the group's main focus has been to broaden its international profile and eliminate cheaper brand lines. In 2000 it spent $200m to buy back its main European license from Poloco of Paris. Since then a series of similar deals have been made to regain control of the international business, including the buyback of retail outlets or licenses, or acquisitions of stakes in licensees. In 2002 the group reacquired a 50% stake in the master licensee for Japan, establishing a joint venture with Onward Kashiyama. (It acquired a controlling shareholding in 2000). In a determined effort to build his standing in Europe, Lauren launched his 2002 Purple Label menswear collection not in New York but in his new palazzo in Milan. The group reacquired its Lauren by Ralph Lauren womenswear line from Jones Apparel in 2004, and successfully relaunched the brand.

However the latter move led to a bitter court battle with Jones Apparel, which claimed that the license for Lauren had been terminated unlawfully. Polo also poached Jones Apparel's president & COO, Jacki Nemerov, to manage its wholesale portfolio. Jones claimed compensation and damages, and won several preliminary court rulings during 2005. The suit was finally settled at the beginning of 2006. Also that year, Polo lost a five-year court battle to prevent the United States Polo Association and rival fashion company Jordache from using a polo player logo, and another Polo licensee, Westpoint Stevens, which makes home furnishings for the group, filed for Chapter 11 bankruptcy protection.

In 2006, Polo Ralph Lauren secured a precedent-setting deal to supply Wimbledon All England Club with discreetly branded clothing for all court officials at its hugely prestigious annual tennis championships. Under the five-year deal, said to have cost Polo "less than $10m", the clothing company supplied outfits for all umpires, ball girls and ball boys, and in return had rights to market a line of official Wimbledon attire in its stores. The deal was one of the first such commercial sponsorship arrangements ever allowed by Wimbledon's notoriously conservative organisers.

Last full revision 3rd October 2016

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