Ralph Lauren
Shelby Gray
Group #2
BUS 440.02
11:30
0 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
1 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 -­‐Development of philanthropic campaigns THREATS 0.16 3 0.48 0.13 2 0.26 -­‐Fluctuating exchange rates 0.18 3 0.54 -­‐Huge competition within target market -­‐Dependence on licenses 0.13 2 0.26 0.20 4 0.8 1.00 2.94 Table 2
2 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.
3 Ralph Lauren IFE Matrix Weight Rating Weighted Score STRENGTHS -­‐Selection of luxury products 0.18 3 0.54 -­‐Premier global player in lifestyle product 0.20 market -­‐Wholesale division for department 0.16 stores WEAKNESSES 4 0.8 3 0.48 -­‐Overseas business revenue loss due to 0.15 exchange rates -­‐-­‐Dependent on few products for revenue 0.11 of the many they offer -­‐Dependence on large retail stores for 0.20 3 0.45 2 0.22 4 0.8 3.29 generating revenue 1.00 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
4 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: Sustainable Competitive 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.
5 Porter’s Analysis
Subject
Rating
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).
6 The Jones Group
Sustainable Competitive
Advantage
Expansion to create a wide
variety in products for girls and
women
Core Competencies
1.Knowledge and experience in
female fashion
2. Breadth of brands for females
3.Brand name appeal
Liz Claiborne 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.
7 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 8 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.
Table 8 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.
9 RALPH LAUREN COMPARATIVE FINANCIALS
Table 9 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 10 10 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.
Comparative Balance Sheet 2010
(numbers in
thousands)
Total assets
Total liabilities
Total debt
Total shareholder’s
equity
RL
JNY
LIZ
$4,648,900
$1,532,300
$282,100
$3,116,600
$2,332,400
$1,194,200
$535,100
$1,138,200
$1,605,905
$1,389,355
$516,146
$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
11 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.
12 *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 commercials total
COST BREAKDOWN
Table 15 TOTAL CAMPAIGN COST
Table 16 13 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
14 •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
15 Table 18
Table 19
Table 20
16 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.
17 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.
18 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.
19