Ralph Lauren says millennial consumers are no longer interested in physical stores

Ralph Lauren says millennial consumers are no longer interested in physical stores

Ralph Lauren has become the latest US brand to announce it is doubling-down on its digital offering and scaling back its retail presence as it discovers millennial consumers are "not interested in going into brick and mortar" stores.

On a conference call with investors in the wake of its first quarter results, the Polo brand owner revealed it would be investing in growing its digital presence and would be cutting back in other areas including its department store presence and promotion-led sales.

Ralph Lauren swings to a profit as Q1 sales decline 

Despite moving to a profit in the three months to 1 April – from what one analyst called a "disastrous Q4" – the company experienced a revenue fall to US$1.35bn from $1.55bn a year earlier. This it attributed to distribution and brand exits, a strategic reduction in shipments and promotional activity to increase the quality of sales, as well as lower consumer demand.

The firm has been on a mission in recent quarters to improve the quality of sales, following falling sales in its retail division. Yesterday (9 August), it conceded digital is the way forward – noting that its retail sales on US department store customers' websites "continue to post positive growth versus last year" – and announced it would be taking steps to up its game in the digital channel.

The announcement comes as an increasing number of US retailers are finding themselves under pressure to grow as mall traffic slows. 

Under Armour last week reported it would be closing stores and cutting jobs as it moved to rebuild a stronger and smarter company with faster go-to-market speed and greater digital capabilities.

Under Armour to close stores and cut jobs amid restructuring

Such moves mark the acknowledgement from brand owners that they need to do more to adapt as consumers increasingly take their spending online. Today's brick-and-mortar stores are struggling to compete with e-tail giants such as Amazon, a challenge which is only set to become bigger as it moves to grow its apparel and footwear offering via its subscription service, Prime Wardrobe.

Amazon to offer "try before you buy" service

"To say the retail industry is at an inflection point would be an understatement. Technology has transformed the way consumers shop and connect with retail brands. Retail store closures are near a 20-year high as the fundamental shift to e-commerce continues. To stand out and compete in this environment, consumers expect an omnichannel shopping experience that's unlike anything they've seen before. While not easy, I see it as our job to redefine the shopping experience of the future," asserts Ralph Lauren's newly appointed CEO, Patrice Jean Louis Louvet.

And as the millennial segment continues to grow in size, its needs are also something brands need to respond to far more quickly. Ralph Lauren is convinced it has the foundations to appeal to this key consumer group, but it now needs to work to "translate it" in a way that is relevant.

"They are looking for meaning in brands," explains Louvet. "They are not just buying a product. They're buying into a world. They're buying into a set of values. And they place a lot of emphasis on where you come from, what you stand for, what's your story, what are your values, are you giving back to the world. I think, again, the Ralph Lauren brand is incredibly well-positioned on this whole meaning space.

"But I feel very confident coming in with the foundations of this brand [in social media and driving digital]...and I'm very confident we can do this well, to translate it in a way that connects with today's consumers and the millennial population coming up."

Ralph Lauren has revealed a three-pronged approach to attacking its e-commerce plan.

  • Own site: Ralph Lauren.com will be relaunched by the second half of fiscal 2018 as a cloud-based solution. "With our new consumer interface, we will continue to directly operate and fulfil our e-commerce business with reduced transaction friction for our consumers, improved ability to execute dynamic changes and enhanced omnichannel capabilities," says Jane Hamilton Nielsen, chief financial officer. "This solution will deliver a more brand-enhancing and consistent experience for customers and provide a more flexible and nimble solution for us".
  • Retailers' sites: This will involve working closely with its retail partners on the way the brand appears from the brand-building standpoint, its own storytelling standpoint and an e-commerce standpoint.
  • Pure-plays: Ralph Lauren notes this area is "obviously growing significantly." The firm recently signed with Zulily – a US e-commerce player that sells clothing, toys and home products – and said it would expand its presence among the pure players both in North America and globally. Ralph Lauren's wholesale e-commerce business, which includes department stores and pure-plays, makes up about $0.5bn in retail value globally. That is about 10% of its overall wholesale business in FY2017.

In addition, the brand will continue on its path to cut back on promotions, which it maintains is "critical to delivering price coherency in the market," and slimming down inventory. On the distribution front it plans to exit around 20-25% of the department stores it is in by the end of this fiscal year.

Better brand clarity

Global Data analyst Neil Saunders, says as much as this will harm wholesale revenues in the short term, it will ultimately allow the designer to improve brand clarity.

"As we have noted before, it simply isn't credible for a high-end brand to simultaneously showcase itself in a glitzy store on Madison Avenue while at the same time hawking a random assortment of sweaters thrown in a ragtag way on a table in Macy's."

He adds one of the key objectives must be for the company to secure new custom "especially new, younger consumers who do not feel connected with the brand.

"Fortunately for Ralph Lauren, our data show that the brand is not actively disliked and is, indeed, held in some affection. However, many lapsed, and non-consumers just do not see it as relevant and meaningful to them. Creating these customer connections is the real key to driving sustainable growth.

"We are under no illusions that this process will be hard and painful. We also believe that because of its many false starts, while Ralph Lauren has been running the race of reinvention for quite some time, it is now effectively back at the starting line as it embarks on its latest quest to win back its lost glory," he adds.