Ralph Lauren's Patrice Louvet plans to nearly triple Greater China revenue in five years
Ralph Lauren has not yet fully shed its old skin. In the last two years, the US fashion group has been busy transforming its business model, in order to respond more effectively to the industry's dynamics and challenges. Patrice Louvet, the group's new General Manager, who recently took over from flamboyant Stefan Larsson, the initiator of the transformation process, said he is ploughing on in his predecessor's tracks.
Louvet is working in close touch with Ralph Lauren himself, and has recently described the three major fronts the fashion group is engaged in. He confirmed the need to improve sales performance, as well as the distribution network's quality. He is of course keen to inject fresh energy into products and marketing, to attract the new generation of consumers. In this, the group lags slightly behind its competitors, both established ones and newcomers. And finally, he plans to expand Ralph Lauren's digital footprint and its international presence.
On the latter point, during a recent conversation with financial analysts, Patrice Louvet clearly identified China as a priority. The size of Ralph Lauren's business in Asia is indeed relatively modest. In the last quarter, closed at the end of September, the group's sales in Asia grew 4% at constant exchange rates. However, at current rates, the revenue in the region remained stable at less than $217 million. On the positive side, margins in the region are growing. After being in the red in Asia for a long time, in the last quarter the group generated an operating income of $26.5 million (compared to $203 million in North America).
However, the group still has it all to do in China. Ralph Lauren was initially distributed in the country through licensees, but in 2010 it took direct control of the business and rationalised the network, going for a luxury positioning it was however unable to sustain. Now it is approaching China as an entirely new region, spearheading its efforts with Polo. Patrice Louvet was keen to express his views on this.
"In the 2017 fiscal year, we will generate a revenue of $50 million in mainland China, equivalent to less than 1% of our global revenue," he said. "According to data by [market research firm] Millward Brown, Polo's brand awareness in China is as high as 83%. This is significantly higher than that of the majority of our competitors, who have a greater penetration in the region. We are going to drive growth by boosting our marketing and distribution efforts, both online and through brick-and-mortar stores," he added.
To develop a connection with the Chinese customers it wants to win over, Ralph Lauren established links with local influencers, and became the label of choice for several celebrities, all of whose followers now add up to one billion people. In parallel, the label's commercial strategy has led to a presence on T-Mall, JD.com and WeChat, as Ralph Lauren is expanding its omni-channel solutions and linking them up with its physical stores.
"While boosting our digital presence in China, our team has added new stores to the network, and also improved profitability. Above all, we harmonised our pricing structure across all our sales channels," said Patrice Louvet. In the last year, we opened 15 small-sized stores in mainland China. By the end of the 2018 fiscal year, we plan to grown the number to 60. The average customer age in these new stores is 34, with a 50-50 split between men and women," he added.
For Ralph Lauren, China is not just a huge customer base opportunity, it is also an attractive expansion region in other respects, since local demand for the label is focused on its higher-priced items and on accessories. An appealing prospect, given that Asia is already the region in which the group generates the healthiest margins. Relying also on the more mature Hong Kong, Macao and Taiwan markets, Patrice Louvet therefore has strong ambitions for the Greater China region: "Our objective is to reach a revenue of approximately $500 million on these markets within five years, compared to about $170 million in the 2017 fiscal year."
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