Digitalization in Retail
Digitalization has significantly impacted the retail consumer experience as well as the industry’s management of supply chain. Competition has radically increased with innovative entrants to the market. The leading twenty-five retailers in the United States witnessed a 2% decrease in market share from 2009 to 2015, accounting for $70 billion in sales[i]. Many of these newcomers are highly adaptable to trends by keeping low inventory levels. Zara, for example, leads the “fast-fashion” industry by using personal digital assistants to track demand and has a cycle of four to six weeks from design to stock.[ii] [iii] Companies without strong demand tracking systems experience significant inventory build-up.
The Ralph Lauren Problem
In 1967, Ralph Lauren created a line of men’s ties out of the Empire State building.[iv] Over the next fifty years, it expanded into a multi-billion dollar corporation offering clothing, home décor and fragrances.
Between 2013 and 2016, Ralph Lauren’s stock price plummeted nearly 50% from $188 to $99.76.[v] Analysts pointed to a primary issue of excess inventory. Ralph Lauren had an inventory lead time of fifteen months, creating three major problems.[vi] First, the company was less able to react to changing trends. Second, holding excess inventory is costly. Over this three-year period, inventory grew by 26% while sales grew by only 7%, significantly hurting the profit margin.[vii] A final consequence was frequent discounting of low-demand products in inventory and a shift toward outlet stores, not only reducing the profit margin, but also diluting the luxury brand image.
The Way Forward
On June 7, 2016 management presented its “Way Forward Plan” to turnaround the company. The CEO at the time Stefan Larsson proposed short-term cost-cutting initiatives, including supply chain enhancements. With supplier collaboration, the lead time would be reduced to nine months, with an eight-week test phase, allowing the company to be more receptive to customer demand. To accomplish this goal, they planned to resort to fabric platforming, a production strategy used by “fast-fashion” companies in which they buy fabric in bulk before receiving designs.[viii] They will also close fifty stores and undergo significant layoffs. Savings will be used to revamp their e-commerce presence in 2018 and to use a platform managed by Salesforce.com for digital operations.[ix] Because 30% of the company’s products accounted for 70% of sales, longer term, the company also intended to refocus on core brands. [x]
Source: Ralph Lauren’s “Way Forward Plan”
A Ways to Go
In Q1 of fiscal year 2018 Ralph Lauren reduced its inventory levels by 31% and the number of discounts consequently fell. [xi] The company also closed 20-25% of underperforming stores.[xii] Sales continued to fall and notably e-commerce sales fell by 10%. In February 2017 Larsson stepped down as CEO. In July the company hired his successor and its first Chief Marketing Officer to transition toward a demand-driven supply chain and promotional strategy.[xiii]
Ralph Lauren needs to further streamline its supply chain. In the short term the company should prioritize the development of its new digital platform and invest heavily in predictive analytics to better assess consumer demand. In the next ten years, the goal should be to establish an automated, fluid process of stocking inventory based on big data, and be able to adjust production weekly using a constant flow of information. This integration of demand with the physical processes should cut labor costs, minimize the necessity for costly safety stock, and further reduce inventory lead time.
Despite its iconic brand, in the long term, will Ralph Lauren remain competitive against massive companies like Amazon which have far greater access to consumer data? Is it too late to catch up to more nimble organizations that have been investing in digital and inventory management systems over the past decade?
(Word Count: 800)
[i] Retail Industry Undergoing Massive Disruption. The Wall Street Journal, 4 Nov. 2015, deloitte.wsj.com/cio/2015/11/04/retail-industry-undergoing-massive-disruption/
[ii] O’Marah, Kevin. Zara Uses Supply Chain To Win Again. Forbes, 9 Mar. 2016, www.forbes.com/sites/kevinomarah/2016/03/09/zara-uses-supply-chain-to-win-again/2/#22317a817df0.
[iii] Christiansen, Bryan. Handbook of Research on Global Supply Chain Management, PryMarke, 2015, p. 193.
[iv] Ralph Lauren Through the Years. The New York Times, 29 Sept. 2015, www.nytimes.com/interactive/2015/09/29/business/Ralph-Lauren-career.html.
[v] The Main Facets Of Ralph Lauren’s Turnaround Plan. Forbes, 1 Aug. 2016, www.forbes.com/sites/greatspeculations/2016/08/01/the-main-facets-of-ralph-laurens-turnaround-plan/#324bf9d9507b.
[vi] The Main Facets Of Ralph Lauren’s Turnaround Plan. Forbes, 1 Aug. 2016, www.forbes.com/sites/greatspeculations/2016/08/01/the-main-facets-of-ralph-laurens-turnaround-plan/#324bf9d9507b.
[vii] The Main Facets Of Ralph Lauren’s Turnaround Plan. Forbes, 1 Aug. 2016, www.forbes.com/sites/greatspeculations/2016/08/01/the-main-facets-of-ralph-laurens-turnaround-plan/#324bf9d9507b.
[viii] Halzack, Sarah. Big Changes Are Ahead at Ralph Lauren. The Washington Post, 7 June 2016, www.washingtonpost.com/news/business/wp/2016/06/07/why-big-changes-are-ahead-at-ralph-lauren/?utm_term=.5156adb5a41d.
[ix] Hoi-Nga Wong, Stephanie. Ralph Lauren Is the Latest Fashion Victim in a New Era for Retailers. Bloomberg, 4 Apr. 2017, www.bloomberg.com/news/articles/2017-04-04/ralph-lauren-is-latest-fashion-victim-in-new-era-for-retailers.
[x] The Main Facets Of Ralph Lauren’s Turnaround Plan. Forbes, 1 Aug. 2016, www.forbes.com/sites/greatspeculations/2016/08/01/the-main-facets-of-ralph-laurens-turnaround-plan/#324bf9d9507b.
[xi] Ganesan, Gayathree. Fewer Discount Help Ralph Lauren Beat Estimates. Reuter, 8 Aug. 2016, https://www.reuters.com/article/us-ralph-lauren-results/fewer-discounts-help-ralph-lauren-beat-estimates-idUSKBN1AO1DE
[xii] Ralph Lauren Reports First Quarter Fiscal 2018 Results. BusinessWire, 8 Aug. 2016, http://www.businesswire.com/news/home/20170808005748/en/Ralph-Lauren-Reports-Quarter-Fiscal-2018-Results
[xiii] Ralph Lauren Names New Chief Marketing Officer. Reuters, 16 Feb. 2017, https://www.reuters.com/article/ralph-lauren-moves/ralph-lauren-names-new-chief-marketing-officer-idUSL4N1G14CK