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POLO RALPH LAUREN

MGT 454 Professor Phillips Judd, Blake, Tati, Nate, Jarrett

Being originated in 1967 in United States, Ralph Lauren is now a well-known luxury clothing and goods company, which specializes in high-end casual/semi-formal wear for men and women in the US as well as outside of US area. Besides clothing, Ralph Lauren is very famous for its accessories, fragrances, home (bedding, towels) and housewares. Polo was Ralph Laurens first brand and soon became the brand which is used to refer to the entire company. It has a wide range of competitors, since its competing with not only brands that produce clothing, but also brands that produce accessories such as sunglasses, glasses, belts, etc. It is very unique in its products, the materials and their manufacturing process Ralph Lauren was chosen as an interesting and very suitable brand for our paper. Since the first class we have been learning all the major topics about companies, managing techniques and ways to help companies to succeed versus their competitors. Out of all the knowledge we have had so far, we thought that it was most suitable for us to choose the topics of External environment analysis, Porters five forces, Resources/Capabilities/Core Competencies, Value chain analysis and the I/O model. We will look deeper into each topic and connect each detail to our company. One of the factors that we chose to connect with Polo Ralph Lauren is the external environment analysis. An external environment consists of four parts: scanning, monitoring, forecasting and assessing. Increase the understanding of the general environment is not an easy task but indeed a very important one. Opportunities and threats are important aspects of the general environment and understanding them helps the companies to grow and succeed against their competitors in the same environment.

3 Companies use different sources to analyze the environment, such as charts, printed materials, even customers and suppliers for faster and in-person responses. Polo can use charts and newspaper materials to understand its environment and all the beneficial factors that the company can use to succeed in the business market The first part of the analysis is scanning. Scanning entails the study of all segments in the general environment. Through scanning firms identify the early signs of the environments changes. It often reveals incomplete and unconnected data. Hence, the environmental scanning is a very challenging but an important factor. The Internet is one of the fastest and most important tools in scanning. When customers go to Ralph Laurens website, ralphlauren.com, it saves the information about the customers, specifically what they are looking for and their interests. The IP address saves in their database and when the customer signs in to the website again, it will bring the ads similar to the ones that he/she was previously looking at. Besides showing similar products on their website, they also post similar pictures as ads on the internet by tracking trends using cookies, so when the customer uses the internet for any purpose, Ralph Lauren clothing and hats will appear as an ad on the pages as reminders and teasers. They pay very close attention to not letting any information about customers out to public. The privacy concern is very important to Ralph Lauren, and that is why they dont give any information out to public, which helps loyal customers trust the company more and at the same time helps them to keep the information secure and not available to its competitors. (ralphlauren.com) The second part of the environmental analysis is monitoring. When monitoring, analysts observe environmental changes to see if something new is emerging from among

4 those spotted through scanning. Successful monitoring means detecting the meaning in the slightest change in environmental events. For Ralph Lauren, it will be critical to monitor the changes in customers preferences. If, for an example, the population of baby boomers will increase in the next two to three years, then Ralph Lauren should pay closer attention to their shopping needs and their preferences to be able to keep up with the competition. They need to monitor the trend to determine if its a short term or a long term trend and make changes accordingly. (ralphlauren.com) The third part of the environmental analysis is forecasting. If scanning and monitoring are concerned with events and trends in the general environment, then during forecasting analysts develop feasible projections of what might happen and how quickly can it happen, as a result of the changed detected during scanning and monitoring. For example, looking at Ralph Lauren, analysts might forecast the time that it will require for the clothing line to reach the marketplace and the length of time it will require for all the companies, including Ralph Lauren to deal with the change and how much time will elapse before Ralph Lauren will get used to the new purchasing patterns as a result of a new clothing brand showing up in the market. It is challenging to forecast events accurately, since the recent crisis makes it difficult for customers and companies be steady for a long period of time. As a result, Ralph Lauren might forecast that the new clothing product will be in the market for a long time and make changes according to the projections. But if the company wont forecast the effect of the economic crisis and its affect on the new product line, then all the time and effort that was put in forecasting will go to waste.

5 The fourth and the last part of the environmental analysis is assessing. The objective of assessing is to determine the timing and significance of the effects of environmental changes and trends that have been identified. Through the first three parts of the analysis, analysts are able to understand the general environment. The intent of the assessment is to specify the implications of that understanding. Without assessment the firm will be left with the data but without any further steps of what to do with it. How accurate the information is about the general environment is as important for the company as how CEOs and managers are going to use the given information for their own benefit. For example, if Ralph Lauren has very accurate information about the new trend but is not using the information efficiently, then the whole process wont benefit the company, unless they have an intelligent idea how to use it for their own advantage. It is critical for the company to use the information they gathered during the environmental analysis fast and wisely, because the business market the company that succeeds is the one that doesnt waste time and acts fast with the knowledge they have about the environment.

For the most part, Polo Ralph Lauren provides products that are a luxury and not a necessity to the consumer. This means that their sales directly depend on consumer confidence and brand awareness. Individual consumers lives often do not depend on the ability to consume Polo Ralph Lauren or other fashionable products. Consumer preferences drive this industry, and as the economy continues to have its struggles, product pricing is becoming more important than normal for the demographics of their

6 consumers. Individual consumers are spending less money then in the past and are willing to sacrifice the purchase of expensive clothes and other non-necessity products Ralph Lauren offers. In addition, the Companys wholesale segment has two large customers, Dillard's and Macy's (Wikinvest 2012). The loss of one of these customers would be great, which gives wholesale customers a certain degree of leverage over the Company. The fact that Polo Ralph Lauren provides a luxury good as opposed to a necessity and the fact that they have two large customers in the wholesale segment leads us to believe that buyer power is on the increase rather than on the decline. Sales at retail locations attract customers with less spending power, but customers are usually willing to pay the prices assigned to Polos products. Polo Ralph Lauren contracts for the manufacture of their products. The Company is not entirely reliant on one manufacturer as they contract with 350-450 different manufacturers around the globe (Brohan 2012). We believe this means that no single supplier or manufacturer has significant power over the company. Raw materials necessary for the production of Ralph Lauren products include fabrics, buttons, and a few other products. Given the fact that Polo Ralph Lauren is in contract with various manufacturers, I believe that supplier power is adequate and stable because if an individual manufacturer becomes too expensive the Company can end their business relationship with the manufacturer. Switching suppliers could be more costly for Ralph Lauren, so it is important to maintain a good relationship with these manufacturers. Lately, consumers discretionary spending has been lower then the past due to the stock market on the decline in comparison to the past, the housing crash and an overall downtown in economic activity. Due to this a lack of consumer confidence and decreased

7 spending, there has been pressure on the companys operating margins. Consumers often buy the brand of clothing that they are the most familiar with. Brand recognition is very important, especially to Ralph Lauren, and it is difficult for an unknown company to compete with Polo Ralph Laurens image. In addition to the importance of brand name recognition, a company would have to purchase adequate floor space to compete with Ralph Lauren. Acquiring floor space could become difficult for many competing companies and department stores, such as Macys and JC Penny, which are often already pressed for space. These important points lead our group to believe that the barriers to entry seem to be moderate to increasing over time. The threat of substitute goods for Ralph Lauren is considered to be on the high end. Polo Ralph Lauren targets the upper-middle class and the upper class consumers. These social groups tend to dress in a formal matter and to buy other enhanced lifestyle products, such as hats, trendy bags and other sleek designs. These social groups have the most disposable income and are likely to buy formal clothes to enrich their wardrobe and apparel. Given a long enough time frame, there is also little substitute for clothing. Substitution plays a large role in the scope of Polos marketing strategy. Some of its direct competitors attempt to present new styles to increase demand, while other companies try to impersonator the designs created by Polo. There is always the possibility that people will choose to not dress so stylishly, but it is unlikely that the formal look that the higher classes are seeking will ever go out of style. In order to remain competitive, Polo Ralph Lauren must remain a respected innovator of quality fashions and expand into other markets. The Polo Ralph Lauren brand name is part of the attractiveness of its products and is essential to its profitability.

8 The rivalry between companies targeting the upper-middle class to upper class is extreme. The fashion retail industry is constantly growing with several competitors, including Tommy Hilfiger, The Gap, Liz Claiborne, Lacoste, and Express. Polo Ralph Lauren has managed to retain a large portion of the market with a competitive edge by introducing popular designs and branching into new markets such as interior decorating and luxury cars. The company is expanding and increasing sales overseas by acquiring smaller retail and manufacturing companies around the world. This being said there are many brands for consumers to choose from, and companies compete primarily on the basis of consumer preferences and brand recognition. Price competition is usually not a huge issue for companies like Polo Ralph Lauren because of their demographics income level. The only issue at hand is the economy seems to be weakened in comparison to the past and more people are willing to not purchase such high end products due to the price tag associated with them. This has an effect on Polo Ralph Lauren because it puts pressure on their pricing strategies to try and meet consumers pricing preference. This pricing pressure could lead to an increase in competition, which leads our group to believe that rivalry is increasing in an already highly substitutable industry. The popularity of the internet has been a big helper to Ralph Lauren it has brought them more sales opportunities, which has led to increased growth. They have dominated the market by creating and selling popular designs, and by creating global operations of manufacturing, retail and licensing. To completely understand the company and the way it works and functions, resources, capabilities and core competencies of the brand are important. Resources are a vital part to the success of any company. From financial resources such as money and

9 inventory to reputation resources such as a brand name, companies can gain a competitive advantage with their personal resources. Arguably one of the most important resources a company can have is the financial resource. Polo Ralph Lauren has always been a leader when it comes to the generation of sales and profits and compared to their competition, they have many financial resources at their disposal. Revenues have been on an increase for Polo Ralph Lauren since 2009. In 09, Ralph Lauren saw their revenue in the $4.8 billion range with their profits at $2.6 billion (Yahoo). According to the numbers from last year, in 2011 Polo Ralph Lauren recorded revenue of $5.6 billion with profits topping off at $3.3 billion (Yahoo). Polo Ralph Laurens ability to generate these funds helps them hold a large market share and give them the opportunity to reinvest the money to expand the company. One of the biggest barriers to companies expanding and becoming one of the largest in their specific niche is money, so with Polo Ralph Laurens financial resources they can gain a large competitive advantage. The financial resources they have also lead into other important resources that Polo Ralph Lauren holds against their competitors. Some of the financial resource advantages that they hold are in the amount of cash and investments they have at their disposal, topping off at over $1 billion as of last year (Ralph). Their current assets are on a steady rise as well, jumping up from $1.8 billion in 2008 to $2.4 billion last year (Ralph). The physical resources such as their store locations and factories to make their luxury products are important for the company to create and sell their products for profit. Technological resources also play a part in Polo Ralph Laurens success because without the machinery to mass-produce their products, the cost to create the products would increase thus decreasing the profit margin. Companies as

10 large as Ralph Lauren rely on these innovations and resources to keep their advantage in the luxury consumer products market because if they do not maximize their resources, they leave the door open for competitors to steal the market share.

The capabilities of Polo Ralph Lauren to be a leading provider of luxury consumer goods are exceedingly greater than their competition. Regardless of the type of products a company makes, to save money and be efficient they need to limit the distribution costs. For Ralph Lauren, they not only have their own specialty stores where they sell their products, they also work directly with large chain companies that carry their products. This not only increases their exposure to the everyday shoppers who may not know about Ralph Lauren, it also is important for the expansion of the brand. Large chain stores have always preferred to sell the Polo Ralph Lauren brand because of the history and excellence behind the name that has been the reputation the company has been looking to achieve. The distribution and manufacturing has definitely helped them become a leader in the availability of their products as well. To become very successful in the distribution and manufacturing of products through the companies capabilities, Ralph Lauren also needs to market their products to

11 make distributors interested. Ever since the beginning, they have held their company to a standard of excellence and class and one of the ways they do this is through marketing. Just based of their marketing techniques, customers know they will be receiving a high quality product that will last. They have also been able to create a brand image and a logo that customers can recognize on anything that they sell. With the Polo Ralph Lauren logo, it represents the high quality luxury products that we all know belong to the company. In order to gain an advantage on competitors, marketing has become one of the most important elements to a successful business. Businesses are putting millions of dollars into advertising and marketing campaigns to get the word out and Ralph Lauren demonstrates their productive ability to market high quality products. The core competencies of Polo Ralph Lauren are what set the company apart from their competitors. Value is what Ralph Lauren has always focused on from a product standpoint with their premier quality. Having the valuable products that are rare and at the same time costly to imitate separates them from their competitors. With their high quality products, Ralph Lauren has made it hard from companies to copy their products and most of them are nonsubstitutable. This has always been the focus of the company and the loyal customers who choose to buy their products enjoy the fact that they are different. While Polo Ralph Lauren is a top competitor in its industry, it still faces a great deal of competition. The value chain analysis can be used to take a look at the competitive strengths of the business in relation to their competition. The value chain itself can be broken down into two segments; primary and support activities. Primary activities consist of components that are directly related to the creation, development and

12 delivering of the product. On the other hand, support activities focus on tasks that are not directly focused on the production, they are geared more towards increasing efficiency within the organization. When looking at Polo Ralph Laurens primary activities the first thing to delve into would be their inbound logistics, which would consist of the activities they participate in to receive and store materials they obtain. Polo Ralph Lauren has a complex inbound supply chain that encompasses multiple global shipping locations, international freight forwarders, customs brokers, third-party logistics providers, and several distribution facilities (Apparel). The company would find great difficulties if they tried to go about their inbound operations in any other way as they are such a diverse producer with products ranging from t-shirts to gowns, and furnishings. Operations are another aspect when looking at primary activities involved in the value chain analysis. Operations are defined as the way a company uses its inputs and converts them into their outputs. Polo Ralph Lauren is outsourcing that majority of their production as they rely heavily on Asian countries, specifically China and Japan to produce the majority of their products. This has been beneficial for them as they consider it to be one of their strengths via a SWOT analysis. It is mainly viewed as a strength as it has allowed them to expand internationally with growth into many Asian countries in recent years. Another aspect involved when analyzing the value chain is outbound logistics, which consists of getting Polo Ralph Laurens products to their consumers. The company sells its products through multiple distribution channels including golf/pro shops, department, specialty, outlet, and Polo stores (Apparel). They do however, have

13 other products, which they consider to be higher-end and they are sold only in the higher-end department stores and specialty stores. The way they are attempting to grow their current distribution channels is with what they call shop-within-shops, These shop-within-shops enhance brand recognition, secure valuable selling floor space, and permit more complete merchandising of the companys lines (Barker). The next aspect to look at is that of marketing and sales, which are essentially the process of informing consumers about products that Polo Ralph Lauren, will be selling. They use a marketing strategy in which they utilize a multichannel strategy in interactive marketing while maintaining their brand in print and all other marketing outlets (Luxury). Fortunately, for Polo Ralph Lauren, they have an extremely favorable brand recognition, and have developed brand loyalty with the majority of its consumers. The fact that their logo is so recognizable allows them to market without even necessarily marketing, as anyone walking by with a polo item on is unofficially marketing for them. Their strong marketing capabilities have allowed them to reach sales of over $5 billion in global revenues. The final part to the primary activities of the value chain analysis would be service, which is the way a company maintains their products performance once the product has been sold. Polo Ralph Lauren sells consumer goods that are purchased once and not maintained by the company. While they do not necessarily partake in any service of their products, the service they do supply is their product quality. They continually make their products the highest quality, and are considered one of the elite companies within the clothing industry. They use their high quality products to help customers maintain their products, which could ultimately be considered a service by some.

14 Now looking at the support activities involved with the value chain analysis, the first aspect to look at is procurement. Procurement concerns how a company acquires its assets. As aforementioned, Polo Ralph Lauren outsourced their labor to Asian countries to obtain their products. By outsourcing they feel that they are maximizing their profits and truly believe it to be a core competency. Also involved with support activities is human resource management which consists of the way a company recruits, develops, motivates and rewards their employees (Careers). Polo Ralph Lauren views their employees as their most important asset and treats all 14,000+ around the world as such (Careers). They feel that while growing as a company they are able to remain dedicated to maintaining a dynamic and inclusive work environment (Careers). They also value each individual and their talents, and are committed to programs that support employees and prohibit discrimination. Technology development is another aspect of the support activities, which is concerned with the management, development, and protection of a companies knowledge. Technology has greatly altered the fashion industry in recent years as companies are turning to technology to manage more aspects of their business. Technology allows for companies to reduce costs, increase just-in-time capabilities, new methodologies and automation as well as allowing them to get their products to store shelves much faster. While they are not necessarily developing any new technologies with their products they are using technology to allow them to get their products to consumers in easier ways and with far greater efficiency. They are doing this by developing things such as phone applications, which allow their consumers to shop more easily wherever they are, as well as a very productive and consumer friendly webpage.

15 Increasing technology has drastically altered the world in its entirety and it is clearly not leaving any industries behind as even apparel companies are being revolutionized by technological advancements. The final aspect involved with support activities is infrastructure, which in a broad sense involves everything from finance, planning, quality control and general senior management. When looking at their management it starts with CEO Ralph Lauren, vice chairman F. Lance Isham, COO Roger Farah, and others involved with the operations of Polo Ralph Lauren (Barker). These men have allowed the company to flourish and be viewed as such a success due to their continued leadership in both design and marketing. They have brought Polo Ralph Lauren to the forefront of the high-end clothing market and look to continue to do so through new innovative processes, such as attempting to move their product not only online but via mobile devices as they are developing smart phone applications. Financially, they seem to be continually growing as they have a steady increase in their total revenues, as well as a growing amount of assets. By examining the value chain analysis assessing Polo Ralph Lauren becomes far easier especially considering how they developed a competitive advantage over their competitors. It also allows us to Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage (Strategy). The basic premise of the I/O model of above average returns is to explain what influences the external environment have on a specific firms strategic actions and the performance of those actions. Firms like Ralph Lauren use the I/O model of above

16 average returns to identify opportunities and threats within their industry. Opportunities are situations that will help the firm to potentially reach their goals. These opportunities usually present themselves in the external environment. Threats are situations in the external environment that may inhibit the firm from reaching its goals. When firms do not correctly identify and act on the opportunities and threats in their external environment performance can suffer. This can happen when firms neglect to use their resources correctly. The retail industry is prone to constant changing market trends and consumer preferences. During the late 1980s and into the 1990s Ralph Lauren validated the fact that being aware of changes in the external market can pay off. The biggest change in this time period was in consumer preferences. Specifically, the firm realized that the consumers preferred more fashionable jeans and clothing. One of Ralph Laurens direct competitors was not able to effectively adapt to the changing market. Levi Strauss chose to stay with the more traditional style of jean and clothing line, they also decided against putting their brand in discount stores such as Target and Wal-Mart and suffered the consequences. Ralph Lauren was able to steal some of the business away from Levi by realizing that the consumer demand was changing and people were becoming interested in more fashionable clothing products. These changes in preference causing the changes made by Ralph Lauren had a positive effect on their firms financial performance. Ralph Lauren is excellent when utilizing their assets and skills, which is the fourth part of the I/O model. They use their assets to implement their strategy, which allows them to sell clothing and other products at very high prices. Their biggest asset is the brand loyalty they have developed with their customers. People will buy a simple t-shirt

17 that is regularly $8 for $40 if it has a polo horse on it. The brand loyalty carries over to other sections of Ralph Lauren products. If you are a polo person (meaning you regularly wear polo clothing) you are likely to also purchase merchandise in other sections of Ralph Lauren such as bathroom products, soaps, after shave, deodorant, cologne, and bedding merchandise such as sheets, pillows, comforters. Summarizing the factors and their connection to Polo Ralph Lauren we see that Ralph Lauren pays close attention to external environmental analysis. It realizes the two important parts, scanning and monitoring, and uses the information provided to forecast their situation and any possible goals for the company later on to be assessed thoroughly without mistakes. Next, before when we look at Porters five forces, we mentioned that Polo Ralph Lauren provides luxury clothing not necessities. The customers are loyal to the brand and knowing that Polo Ralph Lauren needs to keep their quality of clothing unchanged. Seeing how the economy affected customers buying trends, Polo should try harder not to lose the customers, who are buying the products based on luxury. If we do lose the customers, the loss will be great. Porters Five forces looks at all the aspects thats important for the company to stay where it is and succeed without losing any loyal and devoted customers, no matter that the reasons are: like the financial situation that customers are facing nowadays. Then, we looked at resources, capabilities and core competencies that Polo Ralph Lauren follows and includes in the way they do business. We looked at different aspects of each factor and connected them with Polo. We looked into resources, such as financial, human, technological, etc. and tried to see how Polo does it business by using their resources effectively, then looking at capabilities and core competencies we tried to see how the company reaches out to its customers, how they

18 distribute their products and we looked into their human resources for more understanding about the company. For the last two factors we used Value chain and the I/O model to see how their company is designed: to understand and explain how the company works from the inside: operations, logistics, and what the company looks like as a whole: their assets and skilled, strategy formulation, external environment, etc Just like Ralph Lauren said, I don't design clothes, I design dreams. The same way he thrives to see his company as a very successful company for a long time and we used some factors to show how it operates and keeps its place in the competitive market.

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WORKS CITED 2008, Levi Strauss, Company Transformation, www.levistrauss.com, March 2. A Bright Spot Among Europes Gloom. Mark Brohan 2012. 4/01/12. http://www.internetretailer.com/mobile/2012/04/01/bright-spot-among-europesgloom?list_type=mag&index=5 http://www.wikinvest.com/stock/Polo_Ralph_Lauren_(RL) "Apparel Logistics & Technology: A Perfect Fit." - Inbound Logistics. Web. 29 Apr. 2012. http://www.inboundlogistics.com/cms/article/apparel-logistics-and-technology-aperfect-fit/ Barker, Darren E., and Rafay Khalid. "Polo Ralph Lauren Corp." Wedbush Morgan Securities, 14 Nov. 2000. Web. 10 Apr. 2012. http://business.fullerton.edu/finance/mstohs/Polo.pdf C. A. Montgomery, 2008, Putting leadership back into strategy, Harvard Business Review, 86(1): 5460; M. E. Porter, 1996, What is strategy? Harvard Business Review, 74(6): 6178 "Ralph Lauren Is 2010 Luxury Marketer of the Year." The Ultimate Luxury Community. Web. 29 Apr. 2012. http://ultimate-luxury-community.com/ralph-lauren-is-2010-luxurymarketer-of-the-year "Ralph Lauren Careers - About Ralph Lauren." Document Moved. Web. 29 Apr. 2012. http://global.ralphlauren.com/en-us/About/Pages/careers.aspx "Ralph Lauren Corp." Business Week. N.p., n.d. Web. 22 Apr 2012. <http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=RL: US&dataset=balanceSheet&period=Acy=native> "Ralph Lauren." Ralph Lauren Privacy. N.p., 2011. Web. 29 Apr 2012. http://www.ralphlaurencenter.org/privacy_policy.asp?langid=1

20 Ralph lauren outlet Discussion on the county level environmental monitoring station. N.p., 2012-04-05. Web. 29 Apr 2012. http://ywvozmqfd08.blogbus.com/logs/203046167.html "Strategy: Value Chain Analysis." Value Chain Analysis. Web. 29 Apr. 2012. http://tutor2u.net/business/strategy/value_chain_analysis.htm "Seeking Alpha." Ralph Lauren Generates Significant Economic Profit. N.p., 15 April, 2012. Web. 29 Apr 2012. http://seekingalpha.com/article/497611-ralph-lauren-generatessignificant-economic-profit "Yahoo Business." Ralph Lauren Corporation Company Profile. N.p., n.d. Web. 22 Apr 2012. http://biz.yahoo.com/ic/40/40369.html