Why Ralph Lauren will cut 1,000 jobs, spend $400 million to restructure

Last September, following a consistent three-year slump in sales, American fashion icon Ralph Lauren ceded the title of chief executive officer – one that he has held for the entire 49-year history of his self-named company – to a young Swede named Stefan Larsson who had previously established his name at fashion retailers H&M and Gap Inc.’s Old Navy. While Mr. Lauren remains the company’s chairman and chief creative officer, as well as its single-largest shareholder, Mr. Larsson will be using his recent experience to attempt to rebuild the fashion giant.

Tuesday, Larsson unveiled a comprehensive strategy for massive restructuring within both the company’s sales philosophy and overall corporate structure.

“Our performance has been disappointing over the last three years, and it doesn’t match the strength of the brand,” said Larsson in an interview with Suzanne Kapner for The Wall Street Journal.

The sag in sales for the well-known apparel company falls alongside an industry-wide downturn in retail sales. This May alone, sales at Banana Republic dropped 11 percent, Old Navy Global went down 7 percent, and Gap reported a 3 percent decline. Meanwhile department stores remain in a slow, downward spiral. The newly announced restructuring strategy at Ralph Lauren appears to be, at least in part, a reaction to this trend.

Larsson says he believes Ralph Lauren and Polo sales remain overly reliant on department stores, where shoppers are lured by discounts. Larsson says he will be looking to reduce merchandise sold to major department stores and even cut back its own retail stores in order to refocus on target audiences.

Larsson also noted that an apparent backlog of inventory was driving merchandise to discount retailers such as T.J. Maxx. He pointed out that, while the company’s sales have increased a modest 7 percent over the past three years, inventory has increased by 26 percent.

While speaking at the company's first-ever meeting with analysts and investors, Larsson stated that fixing problems in the wholesale sales chain, mainly sales to department stores, was his top priority, as reported by The Wall Street Journal.

Beyond cutting bloated expenditure and streamlining inefficient production models, Larsson says he plans to retool the company’s focus around core brands and principles, such as the notable and consistent Ralph Lauren and Polo labels, while others – such as the RRL label – will have to demonstrate viability.

Corporate revenue is expected to fall throughout the fiscal year as the company closes about 50 retail stores and pulls back excess merchandise already delivered to department stores. According to Valérie Hermann, who oversees the company's luxury business, 70 percent of Ralph Lauren sales comes from 30 percent of its products.

Along with the shift in external focus, Larsson plans to eliminate several management tiers and expedite the production cycle with the cutting of about 8 percent of the company’s full-time employee base – about 1,000 jobs.