What’s Next for Ralph Lauren?

30 Sep 2015 | Author: | No comments yet »

A Day in the Life of David Lauren.

Analysts’ outlook for Gap Inc. is mixed to negative, with many lamenting the loss of Old Navy’s global president, Stefan Larsson — who’s set to become the chief executive of Ralph Lauren Corp. and a member of that company’s board in November — but holding off on long-term projections for the company. MKM’s Roxanne Meyer doesn’t think the departure of Stefan Larsson, the head of Gap’s (GPS) Old Navy unit, for Ralph Lauren (RL) will “rattle [the] short-to-medium term view” for Gap.New York • Ralph Lauren Corp.’s shares extended their rally Wednesday, a day after the fashion company announced it was hiring Old Navy’s top talent to take over the CEO job.

DAVID LAUREN, 43, son of the legendary fashion designer and executive vice president of global advertising, marketing and corporate communications for his father’s company, strolls through the New York flagship store on a late-summer afternoon. “My father writes through clothes,” Lauren says as he stops to flip through a monograph about the brand, admiring glossy images of horses on beaches, vintage cars and models in haute prep wear. “He takes you into these dreams.” He pauses as he comes across a black-and-white photo of the young Lauren family—and of himself as a child, smiling winsomely at the camera. “I grew up inside the dream,” he says.“This is important to say: There is no toe in the water…I won’t be coming in two days a week,” the 75-year-old told WWD, who is retaining his role as executive chairman and chief creative officer when his company’s new CEO Stefan Larsson, joins the company in November. Ralph Lauren’s stock RL, +12.45% jumped 12.2% on Wednesday, while Gap Inc. shares GPS, -5.46% were among the biggest S&P 500 decliners, with a 6.3% drop. “This is disappointing news for Gap,” stated a research note from Stifel analysts, “as Larsson’s successful leadership at Old Navy has helped the division grow rapidly, increasing sales over $1 billion in the last three years.” However, in Stifel’s view, Old Navy has a “strong, deep team” that will continue to thrive in the long term.

If Ralph Lauren has excelled at evoking fashion fantasies—seducing customers by conjuring visions of British aristocrats or American cowboys—his son is focused on making those fantasies more immersive with 21st-century media and technology. His replacement is a Ralph Lauren outsider; Larsson spent 15 years at H&M in the senior management team before being appointed president of Gap-owned Old Navy in 2012, a mass-market chain in the US where he has helped build three years of consecutive growth. He led the recent development of the PoloTech “smart” shirt, which tracks biometric data, and spearheaded a holographic runway show last fall in which 3-D models were projected onto a four-story wall of water in New York’s Central Park.

Shares of the New York-based company rose 13 percent in afternoon trading Wednesday to $117.38, after climbing nearly 4 percent in after-hours trading Tuesday when the news was announced. MKM Partners said the company’s strengths, along with “underappreciated margin catalysts,” will offset the weaknesses at the company’s other brands, Gap and Banana Republic. 2015 is just “the second full year that this team has been influencing Old Navy’s culture, branding, processes, supply chain, and product direction, which suggests to us that there are many innings to go,” the firm wrote in a note. Larsson’s impact on product, process, and ultimately performance over the past two years, and will assess how new leadership and any future key people changes could alter our longer-term constructive view of Old Navy, a critical part of our thesis. It’s a welcome shot in the arm, considering shares have slumped 44 percent this year, more than 21 percent in just the past three months as sales growth has slowed.

The global fashion, home decor and accessories empire has been grappling with a tough economy in Europe, the impact of the strong U.S. dollar, and increased competition in the luxury business. While at Duke University he started Swing magazine, a publication meant to give voice to Gen X (and eventually acquired by Hachette Filipacchi); he served as editor in chief until 1998, when the venture shuttered. Lauren, who founded his business by selling wide ties to Bloomingdale’s in the late 1960s will still retain creative control. “I bet he stays on as creative director as long as he’s vertical,” commented Pat Cook, CEO of Cook & Co. to Bloomberg, adding: “No one can replicate his style.” Ralph Lauren faces competition from fast-fashion retailers, something which Larsson has plenty of insider knowledge on.

But Lauren told The Associated Press on Tuesday, with Larsson sitting at his side in his Madison Avenue office, that he isn’t slowing down anytime soon and he isn’t leaving. In 2000 he joined Ralph Lauren—somewhat against his better judgment at the time—where he was immediately tasked with helping the company navigate the digital revolution. And perhaps reassuringly, should Ralph Lauren chose to ‘go faster’, the brand’s signature preppy aesthetic is so core to the brand that it could most likely withstand any mass-exploitation. CEO Arthur Peck during the company’s last post-earnings conference call, on Aug. 20. “It sits on a platform of product process that they have built over the last couple of years and now are pretty relentlessly executing season after season. Key leaders include Ivan Wicksteed, Chief Marketing Officer, formerly Global Creative Director of Coca-Cola (KO) and the driver of brand transformations at Converse and Cole Haan, and Jill Stanton, the former Head of Apparel at Nike (NKE).

In July, the couple announced they are expecting their first child. *After press time, Ralph Lauren announced he was stepping down as CEO of his fashion company. It should easily outlast him.” What’s certain is that when the time comes for Mr Lauren to step down completely, only he can take credit for creating a global brand that made him a billionaire and the polo-serving horse and its rider an instantly recognisable logo. Other key players include athletic wear designers from Nike and Reebok, an accessories and bag designer from Coach (COH), and the men’s apparel director from North Face.

It also shouldn’t alter Old Navy’s near-term performance: Marketing plans for the all-important holiday quarter have already been completed and merchandise has been purchased through the spring. We look for Old Navy benefit from strength in the denim and active categories, and for margins to benefit from inventory discipline, modest AUC benefits, the continued roll-out of fabric platforming, and benefits from store closures. That’s why the industry is seeing not just a growth in fast fashion, but also in off-price stores like Nordstrom Rack, where shoppers can get big-name brands at a lower price. “The luxury and the price-conscious brands are still separate, but there’s more intertwining going on,” she said. I am always looking for the future and bringing in the right people that will build the company.” Choosing Larsson might be a surprise choice since he comes from a world of low-price fashion. In reporting its August sales results, the company said same-store sales at Gap were down 8% versus 6% a year prior and same-store sales for Banana Republic were down 11% versus a 2% decline in August 2014.

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