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Ralph Lauren’s CEO will exit after a creative clash

February 2, 2017 11:05 AM
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(Bloomberg)—Ralph Lauren Corp. abruptly announced that CEO Stefan Larsson will be leaving after a creative clash with the fashion brand’s founder, sending shares of the struggling company into a tailspin.

Larsson, who previously ran Gap Inc.’s Old Navy, will be departing Ralph Lauren on May 1 after less than two years on the job, the company said on Thursday. Larsson will get $10 million in cash severance and health benefits over the next two years.

The surprise split followed discord about how to reinvigorate the 50-year-old brand, which was a standard bearer for preppy style in the ’80s and ’90s. In recent years, the company has suffered from heavy discounting and an overreliance on the beleaguered department-store industry. It also has an aging customer base and no clear way to appeal to more millennial shoppers. Ralph Lauren is No. 53 in the 2016 Internet Retailer Top 500 Guide.

Ralph Lauren, 77, said he and Larsson ultimately couldn’t agree on the creative direction to take the business.

“We both recognize the need to evolve. However, we have found that we have different views on how to evolve the creative and consumer-facing parts of the business,” Lauren said in the statement. “After many conversations with one another, and our board of directors, we have agreed to part ways.”

The news sent the shares down as much as 11% to $77.50 in New York on Thursday. The stock had already fallen 22% in the past 12 months as investors remained uncertain about Larsson’s turnaround plan.

Larsson may have been doomed to fail because of his background in budget apparel, which runs counter to Ralph Lauren’s upscale image, said Milton Pedraza, a New York-based luxury consultant. Larsson worked for H&M, No. 77 in the Internet Retailer 2016 Europe 500, and Old Navy (Parent Gap is No. 20 in the Top 500), where he focused on streamlining supply chains and squeezing expenses. Ralph Lauren’s focus, meanwhile, has been on designs, quality and client relationships.

The arrangement was “ill-fated,” said Pedraza, who runs the Luxury Institute. “When you bring in an executive from a company that’s primarily a mass discounter, when you’re participating in the high end and the premium market, you’re not going to get a good fit.”

Pedraza said he knows of five senior executives at Ralph Lauren who left the company in the past six months because of the culture change.

“They said he was really moving in a direction that was much more fast fashion,” he said. “If all you have done is fast fashion, it’s not going to cut it in a design and customer centric setting.”

The shake-up overshadowed some positive results from the New York-based company. It posted profit that handily topped analysts’ estimates in the fiscal third quarter, which ended Dec. 31. However, e-commerce revenue declined 9% year over year, primarily due to the company scaling back on its online promotional activity, chief financial officer Jane Nielsen told analysts on the earnings call.

Management changes

Larsson took over from Ralph Lauren as CEO in November 2015, while the namesake founder remained executive chairman and chief creative officer. Since then, the 42-year-old has shaken up management ranks, cut jobs and shuttered stores.

He has also vowed to get products through Ralph Lauren’s supply chain in nine months, down from 15 months. The idea was to mimic H&M’s quick reaction to fashion trends. The company also refocused on its three core brand—Ralph Lauren, Polo and Lauren—and began working on improving its online experience. According to Top500Guide.com, Ralph Lauren in 2015 grew its online sales to an Internet Retailer-estimated $890 million, up 14.1% from $780 million in 2014.

The job of executing the company’s turnaround strategy, called the Way Forward Plan, now falls to Nielsen while Ralph Lauren searches for a new leader. Nielsen joined last year from Coach Inc. where she held the same post.

 

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