Ralph Lauren SWOT Analysis

BUSINESS DESCRIPTION

The Polo Ralph Lauren Corporation operates as a luxury clothing product provider. The company designs, manufactures, and distributes upscale clothing and related goods through its numerous brand labels and names. These various labels offer multiple ways to appeal to the retail market and enable Ralph Lauren Corporation the ability to divide and market to different demographics, ranging from high-end luxury products for adults to domestic bedding and clothing for children. The most famous as well as original label, Polo Ralph Lauren, forms the basis for its subsidiary components and brands such as Polo Sports, Black Label, Blue Label, Purple Label, Ralph Lauren Home, Club Monaco, and Chaps. Thus, the Ralph Lauren Corporation organizes, manages, and continually develops new subsidiary and client companies that constantly evolve to continue appealing to the luxury goods market. 

COMPANY HISTORY

Founded in 1967 by its namesake designer and businessman, the Polo Ralph Lauren Corporation (PRL) was initially founded as the Polo Fashions Inc., under the guise of designing and marketing men’s neckties to New York males. Finding substantial success, Lauren sought to expand his burgeoning business by launching a fashion line aimed at women in 1971. Continually expanding from its initial status as a “boutique store inside Bloomingdale’s” in New York, PRL soon found itself operating stores far from its birthplace with the establishment of standalone stores in California, most notably the Beverly Hills location (Polo Ralph Lauren SWOT Analysis). With the proper recruiting and training of sales staff, and not even a decade old, “soon sales topped $10 million”, allowing continued expansion of production of new lines (Funding Universe). By 1974, Polo Ralph Lauren had gained enough traction to advertise full spreads in the major New York City newspapers, and four years later in 1978 PRL opened a line of men’s Polo cologne. 

Such rapid expansion took its toll on the company’s infrastructure and Ralph Lauren soon found himself incapable of running the budding business empire and brand culture he had created. Acquiring a talented operations officer and primary business partner by the name of Peter Strom in 1972 allowed Lauren to focus his efforts on his true work of designing new apparel and to allow his staff and managers time to deal with the logistics of supplying the growing demand of Polo goods across the market. Strom’s addition led to a great expansion of Polo products across the United States, making Polo goods embody a “unique American aesthetic” that enabled a massive explosion of business and increasing profitability for the company (Funding Universe). Breaking with tradition, PRL leaped at the chance to establish its own chain stores free of department stores, further increasing the rate of return of landed investments and allowing for direct sale straight to the market. 

The company went public on June 13th, 1997. Designer Ralph Lauren, who had long since considered life outside of business and product creation, netted upwards of $450 million for his shares. Despite this considerable sum, “he retained 90 percent of voting rights […] through his ownership of all outstanding class B stock” (Funding Universe). Thus, Lauren himself retained control of the company that bears his name. Allowing the company to go public set the stage for another round of expansion at the turn of the millennium, with PRL purchasing the Club Monaco line in 1999 and expanding European and Japanese operations to previously unheard-of levels. By the end of the decade, Polo Ralph Lauren had become a quintessentially American staple fashion line and was embraced by the world over. 

ORGANIZATION

The Ralph Lauren Corporation maintains and continually evolves through the manipulation of its brand portfolio and subsidiary lines. The company operates by licensing its design lines and brands to other companies that then share in the costs of marketing and distribution. Though not always successful, this business model allows PRL to maintain primary control over its products and allow other parties to assume much of the financial liability for failed business endeavors or unsuccessful mergers. In 1992, one of Ralph Lauren’s most successful licensees, Cosmair Inc., brought in nearly $30 million a year from a single flagship fragrance. This incredible success encouraged PRL to continue its licensing model, though the abject failure of the Home and Garden line on behalf of the licensee company J.P. Stevens ensured that the mother corporation would be more careful in the future. Moreover, as a licensing distributor and manufacturer, Ralph Lauren would continue its experiment into opening its own retail stores at various locations around the globe. Indeed, Lauren’s unique method of advertising a “Polo lifestyle” encouraged the company to purchase its own means of distribution to the market as they could then “control the environment in which the products appeared” (Funding Universe). Even with the high price tag of Polo goods, “there are enough customers to sustain 116 freestanding Polo/Ralph Lauren stores, 62 discount outlets, and some 1,300 boutiques” (Caminiti). These impressive numbers are a testament to the culture power and appeal of Polo products throughout the globe, and PRL’s continued expansion into the Asian and European markets indicates that such progress will not falter. 

PERFORMANCE AND STOCK PRICE 

The Ralph Lauren Corporation and its subsidiaries generated $6,859.50 million during the fiscal year 2012. With a gross profit of $3,998.10 million, the company experienced an increase of 12.3% from the previous year (Ralph Lauren Investor Relations). A five-year annual growth rate of 12.47% a comparative revenue growth rate of 9.81% allows Ralph Lauren Corporation to sit on a stock price of $175.60 per share as of April 2013. Growth from the early to late 2000s has been extraordinary; as of 2010, stock prices had stagnated around a little under $100 per share until adding value until over the past five years to reach the current price. For the most recent fiscal quarter, “net income was $215.7 million […] from $169 million last year” (WWD: Women's Wear Daily; 2/ 7/2013, Vol. 205 Issue 26). Moreover, “total net revenues rose 2.2 percent to $1.85 billion from $1.81 billion” and sales from Polo retailers increased over 4 percent (Caminiti). 

COMPETITIVE STRATEGY

The Ralph Lauren Corporation’s competitive strategy is based around a twofold approach of continual expansion into new markets, particularly in Asia, Russia, the Middle East, and South America, and to continue operating by licensing out its brand name to local distributors in order to reduce operational costs to the company. Moreover, given the Polo brand label’s cultural identity as a status marker amongst upper-class society and as a provider of luxury goods, expansion into new developing regions of the world allows for the Polo brand to become part and parcel of the cultural image of a wealthy individual in these markets. 

Domestically, Ralph Lauren plans to compete with its rivals by increasing the number of outlet stores. Though the company has continued a policy of opening more outlet stores, Ralph Lauren Chief Executive Officer Karlos Kartsotis states that “when you look at our outlet store sales as a percentage […] it’s a very low percentage” (Value Retail News). Increasing profitability as a method of competition also results from an emphasis on e-commerce and the ability to sell the product directly to the consumer, a method of purchase that saw a twenty percent jump in the last fiscal quarter of 2012 (Value Retail News). Thus, e-commerce offers a way for Ralph Lauren products to be sold directly to consumers without the elaborate distribution infrastructure that bites into PRL’s profits. 

In terms of advertising, Ralph Lauren has always led the field with inventive and creative advertising aimed at creating a particular brand identity and culture. The “entire sensibility of one brand” promoted by Ralph Lauren is reflective of the reasons behind the original popularity of the brand itself—there was a certain image attributed to the entire line, a cohesiveness that other designers lacked (Speer, Vol. 53 Issue 8). This unity of theme contributed greatly to the Polo lifestyle designer Lauren promoted. A current corporate strategy involving advertising centers around the twin themes of “drawing the consumer in” and “making it fun to buy” (Speer, Vol. 53 Issue 8). In essence, advertising now aims at bringing the consumer into the Ralph Lauren world, be it through virtual media or the growing number of dedicated outlet stores. Bringing the customer into the world of the designer allows the customer to experience the full range and power of the fashion line and entertains them by creating interactive and inventive ways of customizing products—in 2009, an iPad app allowed customers to design and order their own Polo shirt for a limited time, and even share the design with other customers at physical store locations. Ralph Lauren focuses heavily on advertising and ensuring cultural saturation of company product is a focal point of the competitive strategy adopted by the management. 

STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS

STRENGTHS

As a known cultural icon and provider of quality luxury goods, the brand name that Ralph Lauren carries is a potent strength. As a name that has existed in popular culture and society since the late 1960s, "Lauren pioneered the concept of lifestyle branding” (VanderMey). The creation of the quintessentially American look by Lauren has led to landmark marketing opportunities for the company, such as when it was named the official outfitter of the 2008 United States Olympic Teams as well as designing the official clothing lines for The Open Championships and numerous other professional golfing and tennis associations (Ralph Lauren Corporation SWOT Analysis). Such exposure to the consumer spotlight was not limited to just the 2008 Olympics. Beijing 2012 was “the third time the king of American cool has created a line for the athletes--he did it for the 2010 Winter Olympics in Vancouver, Canada”, as well as the 2008 Games (Elliott). Ralph Lauren’s prominence on the stage of American popular fashion as classy, elite clothing is a strength that its competitors lack, or at least do not possess in nearly the same amounts. 

In terms of costs, the large distribution network provided by the hundreds of subsidiary companies is a strength for the company. As of April of 2011, the “company operated 176 full-price retail stores and 191 factory stores worldwide” as well as thousands of boutiques and representative outposts in larger retail locations (Elliott). In addition to the retail outlets, the company operates online e-commerce websites in North America, Europe, and Asia. These websites provide access to Ralph Lauren product lines constantly and offer customers efficient and comfortable ways of ordering merchandise without having to physically locate a store. Moreover, the large distribution network provides an immense boon to the ability of PRL to saturate the market with its image. 

Financially, the Ralph Lauren Corporation is on solid ground. The profit margins are high, though not exceeding industry standards by any great amount, in part due to the licensing model of distribution and the surge in retail stores operated by the company. In addition, through their quarterly sales reports, the company reports only positive financial growth for all fiscal quarters, though the growth rate experienced a slowdown beginning in 2001. Though it cleared up shortly after, it nonetheless slowed the growth of the company and it was not until recent years that the stock price made the sort of gains it had in the 1980s. However, despite the reduced growth rate, operational margins are increasingly more efficient and the company operates ever-growing numbers of its own retail stores, a cost-reduction effort that slices away much of the costly infrastructure required to contract with yet another vendor to distribute goods. Though rental retail costs are initially high, the savings pay off handsomely within a few years and the initial startup expense of the corporation can be recouped. 

Lastly, the Ralph Lauren Corporation offers a broad selection of products that range from luxury suits and clothing for men and women to much more affordable, yet still brand name, goods for children and young adults. Through Club Monaco, Chaps, and various Polo-branded subsidiaries, Ralph Lauren is able to market to a wide swath of the retail market while still maintaining the premium label associated with their goods. This selection of products is the result of a tried and true design team that has consistently put out merchandise and fashion lines capable of putting out quality work that, in the words of founder Ralph Lauren, “is about establishing an image that consumers can adapt to their own individuality” (National Jeweler; Feb/Mar2010 Special Web Edition). The design teams do not work in isolation, but instead stand side by side with advertising teams, product designers, and production staff in order to create alluring and effective merchandise that will continue to appeal to the broad consumer base established by Ralph Lauren’s success over the past years. 

WEAKNESSES

Ralph Lauren’s large distribution network is, however, also a weakness. The company is deeply reliant on subsidiary companies and contractors to help manufacture and distribute merchandise to the market. In fact, Ralph Lauren itself owns not a single manufacturing center or production facility; instead, the majority of production is contracted out to a handful of large companies (Orr, p. 1-9). This reliance on just a few primary manufacturers lends itself to possible trouble if any of the primary producers encounter difficulty in producing quality merchandise in a timely manner. Moreover, Ralph Lauren’s idea of moving towards more open retail stores seems at odds with the idea of contracting out the entirety of one’s production capacity to other companies. Though manufacturing is a more daunting task than merely opening new stores in prime locations, Ralph Lauren’s insistence thus far on distancing themselves from all production is contrary to how the company first got its start in New York in the late 1960s. In addition, though a failure on behalf of the primary manufacturers seems unlikely, rising labor costs and increasing rents on properties may necessitate a shift to using different contractors, thereby potentially disrupting the supply of Ralph Lauren products while the transition is made. In 2011, “less than 2% of its products were produced in the US, and over 98% produced outside the US in Asia, Europe, and South America” (Ralph Lauren SWOT Analysis). Moreover, outsourcing the entirety of the company’s production lends itself to vulnerability with regards to quality control of merchandise. Regardless of the future of the distribution network, it is clear that such a heavy reliance on external companies to provide the very basis of one’s product is a weakness. 

Compared to other similar companies in the industry, Ralph Lauren consistently underperforms in several important metrics. An industry analysis of the company’s finances show a disappointing rating of “poor” with regards to the value rating of quantitative financial factors, and greatly lacks any fluid liquidity in its assets, partially due to the large scale expansion project launched in order to increase the number of retail stores in operation. Despite these efforts, the company lacks some of the efficiency of its industry counterparts and retains a great deal of unsold inventory as a result of inefficiency within the brands (Orr). Moreover, the “operating margin from continuing operations should worsen after an increase in investments” as the data from Hunter Orr’s industry analysis shows. Though strong financially and running smoothly, some of the internal factors of Ralph Lauren prevent the company from running as smoothly and efficiently as it could. 

OPPORTUNITIES

Expansion into new markets is the keystone of Ralph Lauren business opportunities. In particular, Europe, Asia, and South America are the top areas of expansion for the company. Discussing the direction of expansion, Ralph Lauren stated that “we are looking at the whole world […] China and Asia have been a very important factor for us, and Brazil has been very important” (WWD: Women's Wear Daily, Vol. 204 Issue 29, p2-1, 1p). These developing markets allow the Ralph Lauren brand and image to take hold amongst the budding middle and upper classes of growing economies. Clothing and accessories are a valuable and popular method by which to show economic success in developing economies, and although counterfeit goods of all types total some $300 billion a year across all fields, clothing and accessories nonetheless remain a potent status indicator (Gentry 1). Moreover, developing markets offer the opportunity to not only implant the Ralph Lauren brand into the culture of the area, but also to create areas in which further operational capacity can be derived, primarily through the use of increased advertising and marketing as a result of industry exposure. 

Introduction of product lines into financially stable regions such as Europe pay great dividends as well. The nations in Europe, as well as Canada, are economies that focus on spending more and more as consumers become more confident in credit and depleting their savings in order to purchase more and more goods. Thus, these continually growing markets devote increasing amounts of their income towards consumer goods and premium, high-end products. Increasing marketing efforts to take advantage of consumers opening up their disposable income in increasing amounts 

Retail growth itself offers a strong area of opportunity. In 2012, “Ralph Lauren benefited most from its retail segment, where sales rose 5$ to $187 million. Comparable store sales rose 1%”, meaning that the company itself remains firmly rooted in its bread and butter method of generating revenue, namely the sale of clothing and merchandise in on-site locations (WWD: Women’s Wear Daily, Vol. 204 Issue 29, p 3). However, e-commerce sales have increased 26% from the previous year and online shopping jumped 26.3% from 2004 to 2005. According to the Department of Commerce, online shopping rates have increased at a rate of 18-23% since 2005. These increases and the preference of consumers to shop online in lieu of going to physical stores enables Ralph Lauren to pursue a marketing strategy aimed at garnering the most from online retail. This primarily includes online deals, interactive marketing media, and customized merchandise. 

More opportunities exist in the field of marketing to major sponsored events and supplying clothing and brand lines to specific organizations. The Ralph Lauren Corporation already has a de facto monopoly on the United States Olympic Teams uniforms and that is an incredible opportunity to have over competitors. Indeed, it seems that since “Lauren's sportswear has hung on America's elite since 2005 when the brand became the apparel sponsor of the U.S. Open tennis tournament”, the Polo Ralph Lauren brand may have acquired a quasi-official niche as the provider of clothing for elite American athletes, be they golf, tennis, or Olympian competitors (Eliott). The addition of more prestigious sporting events featuring Ralph Lauren as the primary sponsor is an opportunity afforded to only the company and few others. The Olympics, in particular, are a great marketing tool, as Forbes.com reported that the Polo Ralph Lauren merchandise put on sale for all three of the most recent Olympics sold out repeatedly throughout the event. 

THREATS

The fashion industry can be fickle. Intense competition exists between various premium brands, all of which are fighting to absorb the largest portion of market share possible. Top competitors include Louis Vuitton Malletier, Tommy Hilfiger Corporation, Calvin Klein, Giorgio Armani, and Gucci. Competition between the top premium labels is fierce, and a single misstep in a fashion line can be lead to poor sales for an entire season. Though the Ralph Lauren brand offers a unique and special place in American culture and is a global enterprise, styles can shift from year to year and a competitor can easily take the lead on a new fashion style that Ralph Lauren failed to adapt to or appreciate fully. Moreover, the power of rival corporations cannot be understated, as the other luxury clothing providers all possess massive resources and “some of these competitors are significantly larger and have substantially greater resources” than Ralph Lauren (Polo Ralph Lauren Corporation SWOT Analysis). 

A common problem for any major retailer, rising labor costs are a definite issue for the Ralph Lauren Corporation that must be addressed. Though labor costs were not terribly high when the company first started, the growing demands of the labor force have cut deeply into profits. However, the Ralph Lauren business model of contracting and licensing as much as work as possible helps to defray the inevitable rising costs of labor, yet this is only a delaying measure and eventually, the costs will catch up. Ralph Lauren responds to this pressure by moving its operations overseas, particularly to Asia and Latin America, where labor costs are still low. Moreover, as the company lacks any direct ownership or control over the immediate physical production of their merchandise, the costs are not directly incurred by the Ralph Lauren corporation itself. Instead, the costs are deferred to the licensees and the contractors (Brown 4). However, it is inevitable that rising labor costs in even developing economies will take their toll on company profits. It is likely that Ralph Lauren will follow the same plan as other major capital movers did in the 1950s and 1960s—send as much business as possible overseas. This, however, is again only a delaying measure to avoid rising labor costs. 

Counterfeiting is another threat to the Ralph Lauren Corporation. The Department of Commerce estimates that approximately 9% of world trade consists of illegal counterfeited goods. Counterfeiting is a severe problem in many parts of world; according to Suraj Commuri, piracy and counterfeiting could adversely affect the efforts of the company to expand into overseas markets where fake items are likely to be encountered. However, he also reports that people can usually easily tell when an item is counterfeit due to the poor build quality and lack of any supporting documentation or packaging. In these cases, counterfeiting can, Suraj claims, actually benefit a corporation by granting its merchandise public exposure at zero actual out of pocket expense by the company. 

Lastly, retail rents in the United States are a rising threat. As “retail rents have been on an upturn in the US since 2004; rents have increased by more than 5% since 2004 and are likely to keep rising 5-6% per year” (Polo Ralph Lauren Corporation SWOT Analysis). 

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