Ralph Lauren is getting a big makeover.
The fashion company says it plans to restructure its business by reducing its workforce, closing stores and shifting focus to its core brands. Ralph Lauren is calling the new strategy its “Way Forward Plan.”
Investors weren’t happy with the news. Ralph Lauren stock dropped more than 10% in the first hour of trading.
But the company’s eponymous founder, Ralph Lauren, said on a webcast with investors on Tuesday that he backs new CEO Stefan Larsson’s plan.
“I’m trusting my baby with him, and my baby has to grow up,” Lauren said.
Ralph Lauren has suffered in recent years as the market has shifted to “fast fashion” brands, such as H&M, Forever 21 and Zara. Facing similar problems as other older fashion companies, such as the Gap, Ralph Lauren takes far longer than “fast fashion” brands when changing styles.
It also relies on struggling department stores to drive sales. Brick and mortar stores have been suffering, bringing Ralph Lauren down with them.
The company’s latest quarterly earnings beat Wall Street’s expectations, but marked a clear slowdown in sales compared to a year prior.
Ralph Lauren’s stock lost nearly 40% last year, and it’s down another 20% so far in 2016.
In a historical change-up, the company switched hands in September when Lauren, 76, relinquished his CEO title and handed it off to Larsson. The new CEO is the former global president of Old Navy who held various positions at H&M, helping that company grow its international operations and sales during his 15-year tenure.
Ralph Lauren said its “Way Forward” restructuring charges would cost $400 million, including $95 million in “severance and benefit costs” and $205 million in “lease termination and store closure costs.”
Through these cuts, Ralph Lauren hopes to save between $180 million and $220 million per year.
The company said the purpose of the restructuring, aside from reducing costs, is to create a “more nimble organization by moving from an average of nine to six layers of management.”
Larsson said on the webcast that the company’s “vicious cycle” of “unsustainable sales and profit growth” is going to “hurt the brand” unless it’s reversed.
He said the company has been “driving retail in a siloed way without looking at the customer’s perspective” and this has resulted in excess inventory. He said the company needed better discipline and a clearer path forward. He also plans to “refresh social media and invigorate PR.”
But he did not detail the number of jobs that would be cut, or the number of stores that would be closed.
As of April, the company employed about 26,000 people around the world, 11,000 of which are part-time workers.