) continues to shut down its
stores, we take a look at the underlying strategy and its impact.
brand has been losing out to competitors such as Michel Kors and
Tory Burch. The store traffic has been decreasing and the retailer
stated in its earnings call last month that it can cater to
customers through its other brands such as
Denim & Supply
. With this in mind, Ralph Lauren wants to focus on global
opportunities for its other brands rather than U.S. centric
. In this analysis, we'll look at the potential impact of this
strategy on Ralph Lauren.
The Rugby stores offer aspirational lifestyle collections of
apparel and accessories for men and women. The brand is
characterized by a youthful and preppy attitude which resonates
through its product lines and store experience.
See our complete analysis for Ralph Lauren
Rugby: Why It Started And Why It Is Ending
Ralph Lauren launched
in 2004, specifically targeting college students with preppy
fashion. Preppy is a word derived from expensive prep and
pre-college preparatory schools in the U.S., and preppy fashion is
associated with blazers, stripped ties, khaki pants and tasseled
loafers. This fashion boomed in 1980s and has subsequently
subsided. Ralph Lauren had the idea of combining punk rock and
preppy style to create a distinct fashion range of its own. Preppy
fashion is somewhat related to a vintage look and thus might not
appeal to a large customer base.
Meanwhile, competition from Michael Kors and Tory Burch had been
accessories were performing poorly. The company stated last month
that it can serve
loyal customers with
Denim & supply
and doesn't need a separate brand. With the closure of Rugby
stores, the retailer wants to focus its resources on other
lucrative global brands.
At the end of fiscal 2012, Ralph Lauren operated 16
stores, out of which 13 were in the U.S. The retailer reports the
comparable store sales results of all its brands except
, which might indicate its low significance. Ralph Lauren will
store and e-commerce business in February 2013.
More Focus On Global Brands
Ralph Lauren's other brands have a much better presence in
international markets. For instance, at the end of fiscal 2012, the
retailer operated around 42
retail stores and 58 factory stores in Europe and Asia. Its
brand also has an international footprint via the licensing
channel. These brands have performed quite well with
retail, factory stores and
registering comparable store sales growth of 8%, 13% and 18%
respectively in fiscal 2012.
Ralph Lauren's focus on global markets is evident from the fact
that out of the 38 factory stores opened in the last four years, 31
were in international markets. Similarly, it opened 20
retail stores internationally while it consolidated 15 stores in
the U.S. International markets such as Asia have proved to be quite
lucrative for the U.S. apparel retailers. For instance, in China,
the initial stores of retailers such as
Abercrombie & Fitch
) and Gap (
) have performed well. Additionally, Luxury retailer Coach (
) reported 40% growth from the region in its latest earnings. Ralph
Lauren has a moderate presence in the Asian markets with 16
retail stores and 23 factory stores.
Ralph Lauren Will Experience Positive Impact In
Ralph Lauren does not report
revenues separately. However, we have estimated combined revenues
stores in our pricing model. Assuming that
's revenue contribution is proportional to the number of its
stores, we conclude that this brand constitutes just 2% to Ralph
Lauren's overall value. Thus, adjusting for the absence of this
business in our pricing model, we get negligible downside to the
retailer's stock. However, given the increased focus on other
brands, this decision is likely to complement Ralph Lauren's growth
in the future.
Our price estimate for Ralph Lauren stands at $160, implying a
premium of about 10% to the market price.
How a Company's Products Impact its Stock Price at