Ralph Lauren’s ’80s Empire Struggles to Adapt to Modern Fashion

(Bloomberg) -- Ralph Lauren, the 77-year-old designer who was the envy of the fashion industry for decades, is struggling to adapt his brand to the modern era.

The eponymous founder of Ralph Lauren Corp. sent his chief executive officer packing this week, citing creative differences, in a move that rattled investors and raised fresh questions about whether his five-decade-old company can regain its relevance.

CEO Stefan Larsson, whose departure was abruptly announced after just 15 months on the job, was meant to bring Ralph Lauren closer to the realm of fast fashion. He had previously worked at H&M and Old Navy, chains known for quickly responding to trends and delivering apparel that’s both chic and cheap. But that approach may not fly at Ralph Lauren, which has always touted its quality and designs that are created with less input from the outside world.

And then there’s Ralph Lauren himself, who handed the CEO reins to Larsson in 2015 but still loomed over the company. He maintained the titles of executive chairman and chief creative officer, signaling that he was still in charge of the fashion brand’s vision.

“A successful founder and CEO is likely going to have a very strong view that doesn’t always accept change,” said Simeon Siegel, an analyst at Instinet LLC. “There’s dual conflict going on where investors wonder how a qualified person is going to be willing to be able to walk into the company, believing you’re going to have a long enough leash to do what they believe needs to get done.”

How to Evolve

In announcing the departure of Larsson, the company cited disagreements over the creative direction of the brand: “We both recognize the need to evolve,” Ralph Lauren said in a statement. “However, we have found that we have different views on how to evolve.”

The jarring revelation sent the shares down 12 percent to $76.61 on Thursday, the biggest one-day plunge in a year. Even before the rout, the stock had fallen 22 percent in the past 12 months.

The culture clash has roiled executives in the past year, said Milton Pedraza, a New York-based luxury consultant. At least five senior executives at Ralph Lauren have left the company in the last six months because of the rift, he said.

“They said he was really moving in a direction that was much more fast fashion,” he said. “People were not valued as much.”

Preserving Spirit

The dilemma for the company is how to update its style without losing the spirit that made Ralph Lauren successful in the first place, said Robert Burke, a former executive at the company who now runs his own consulting firm.

“The company certainly needs a new strategy and fresh outlook and some refresh to the brands,” he said. “However, there’s a strong culture that comes from Ralph, and it’s very important to not alienate the consumer with too much change in overall direction.”

The fashion house is now seeking a new CEO, and whoever fills those shoes won’t have an easy task ahead. Ralph Lauren has become an industry paradox: It’s an upscale brand that is frequently marked down and a mainstay of discount racks. The company has relied on storewide markdowns of 40 percent to get customers in the door. And still, same-store sales have declined for nine straight quarters.

After taking the helm, Larsson tried to modernize the company and cut costs. The 42-year-old moved to eliminate 1,000 jobs, trimmed three layers of management and shook up the executive ranks. He also shuttered many storefronts and refocused on three core brands: Ralph Lauren, Polo and Lauren.

Faster Reactions

To mimic H&M’s quick reaction to fashion trends, he streamlined the supply chain and tried to cut the time it took to get fashion into the market to nine months from 15 months. The company was one of the first fashion houses to adapt the so-called “see-now-buy-now” fashion show last year, allowing regular consumers to buy its clothes straight off the runway.

The company won’t be abandoning all of Larsson’s endeavors. His turnaround strategy, called the Way Forward Plan, will be entrusted to Chief Financial Officer Jane Nielsen. She joined the company last year from Coach Inc., where she held the same post.

Ralph Lauren remains committed to the comeback plan, she said on a conference call Thursday. The New York-based company expects to return to revenue growth in fiscal 2019, she said. And even as he keeps creative control over the business, Ralph Lauren isn’t headed back to the CEO job. The septuagenarian isn’t interested in running things day-to-day, Nielsen said.

Larsson, who will officially depart Ralph Lauren on May 1, is in line to get $10 million in cash severance and health benefits over the next two years.

Discount Scourge

The distraction comes at an especially difficult time for Ralph Lauren -- and retailers in general. Slow mall traffic and deep discounts have plagued the industry, with companies such as Macy’s Inc. closing stores and slashing jobs. 

A stronger dollar has hurt tourist traffic, and traditional brands are struggling to compete with e-commerce rivals. That’s led to a buildup of inventory at many stories, leading in turn to heavy markdowns. Ralph Lauren is trying to prevent such gluts by closing 20 percent to 25 percent of retail distribution points.

The challenge of finding a new CEO -- whose views don’t clash with those of the founder -- only adds to the uncertainty, said Chen Grazutis, an analyst at Bloomberg Intelligence.

“They are navigating choppy water,” he said.

--With assistance from Anders Melin

To contact the reporter on this story:
Stephanie Wong in New York at swong139@bloomberg.net

To contact the editors responsible for this story:
Nick Turner at nturner7@bloomberg.net
Kevin Orland