everyone hear me? Oh, now you can. Okay. Good morning, everyone. Welcome to our Investor Day.
Thanks for being here.
We have
a great day planned for you. See if I can okay. Perfect. Okay. So we're going to have a number of our leaders on stage with presentations through the morning and afternoon.
Hold on. I think I'm too excited about the clicking. Okay, there we go. So morning and afternoon presentations. We're going to take 2 breaks, 1 quick mid morning and 1 in the mid afternoon.
And then Q and A is at the end. And we're going to wrap up just around 3 p. M. And after that, the management team is actually going downstairs to the floor to ring the closing bell. So let me tell you about lunch a little bit.
So if you look to your left and right, you'll see we have various areas and a lot of our leaders will be there. Some of the areas that won't be covered in the presentation such as our sourcing and supply chain, our people and development areas, You can meet our new Chief Digital Officer over here, our Chief Information Officer. And then also you can take virtual tours of some of our stores and some of our store renovations. So take the time to do that during lunch. Lunch will be served down the hall.
So it's informal, come in here, go there, but that's about an hour we're going to have for lunch. A few other logistics. I think most of you saw the press release we issued this morning, 2 press releases, one about our long term outlook and the other one about a new board member announcement. And then lastly, now it's time, forward looking statements. Please note those for our presentations for the rest of the day.
And I promise the font size will get bigger throughout the day on the slide. Okay. With that, I'd like to welcome our President and CEO, Patrice Louveian, to the stage.
Thank you. Thank you. Thank you, Everette. That was quite a forward looking statement. I need to take some time to study that in more detail.
Hey, welcome. Thank you for joining us today. We really appreciate you taking the time to spend the next, what, 6, 7 hours today here. We also appreciate your interest in this company and your commitment in us. I know a number of you have actually been following us for many, many years, and I believe one of you has actually been following us since the IPO 21 years ago, almost to the day, June 11.
So thank you for your loyalty. Yes. It's fantastic. I have one screen broken here. Where is my friend, Elisa?
Screen is not working here. All right, great. Thank you. So this year, we're actually celebrating our 50th anniversary. And 50 years is quite a milestone in any industry, but it's obviously a massive milestone in an industry like ours.
50 years of leadership, 50 years of innovation, 50 years of performance and 50 years of passion. So the question for us now is, okay, so what do the next 50 years look like? How are we going to shape the next 50 years as a team with Ralf and with the overall organization we have around the world? So that's really the topic for us today is how we're going to write the next great chapter for this amazing company. So I'm actually joined today by our entire executive lead team.
They're all sitting here in the front row, and you're going to hear from 6 of them throughout the day. So let me introduce all 6 of them. Let me start with Jonathan. Where is my friend Jonathan? Jonathan, our new Chief Marketing Officer.
Jonathan comes from Vice and the media world. Jonathan, among many things, really understands our consumer, really understands how people consume media around the world, and you'll hear more about that throughout the day. 2nd leader you'll hear from is Valerie. Valerie is right here in front. She's French, so she already got a head start.
Among other things, so Valerie leads our brand organization. Valerie has deep and broad experience in the luxury world. Those of you who were here 2 years ago will have heard from Valerie at that time, and you'll hear from her again today. The 3rd leader you'll hear from is David, David Lauren. So I don't think David needs any introduction, but I will still give him one.
David is among other things our Chief Innovation Officer and most likely one of those most creative minds in our company. Then we'll have our lunch break, as you heard from Everen. And then you'll actually hear we'll start a bit of a global tour, was working and just stopped working again. Don't move, just stay next to the screen. That's it.
It's going to start working again. All right. So after lunch, we'll do a bit of a world tour. We'll start with Jeff, our North American leader. Jeff has a really deep and good understanding of our categories and the retail dynamics here in our home market.
And Jeff is kind of a transformer that has been his experience in other roles. So that's what he's working through right now for our home market. And then we'll turn to the rest of the world with our international business and Howard, who leads our international business, will come and share perspective on that part of the business. Howard has successfully led many businesses across the company, different parts of the world. So I think you'll be really interested in what you hear from him.
And then we'll wrap it up with our fearless CFO, who I don't think needs any introduction, Jane. And Jane will come with all the numbers, so we kept her at the end to make sure you'd be here all day. So the ELT, the executive leadership team, all 23,000 employees of this company around the world really stand on the shoulders of one very special man, our Founder, our Chief Creative Officer and our Chairman, Mr. Ralph Lauren. But before you hear from Ralph, you will hear from Ralph in a few minutes, we actually wanted to share with you a video that we put together to acknowledge everything that Ralph and the teams over time have achieved over the past decade decades actually, the past 5 decades.
And you'll see that this brand isn't really about a polo shirt or sweater or jacket. This brand is about living. It's about all aspects of life, and Ralph's life has been the inspiration for everything that this brand has become. And so as you can imagine, it was a bit of a challenge to put together a short video covering 50 years because there's so much we wanted to share with you. But we were successful in getting a decade down to 1 minute.
So please enjoy this 5 minute video that kind of tells the story of our company and acknowledges all the work that Ralph and the teams have done over the years.
I show that film all the time because that looks so good. It sort of says, Oh, wow, do I maybe I still look like you. I was here a long time ago, 21 years, right? 21 years, I remember ringing the bell and watching everyone scurrying around. I said, Oh, my God, this is scary.
You know, what you see in that in the pictures in that film is my life. That's a very glamorous part of my life. I didn't necessarily start out like that. I lived in the Bronx. I got married in the Bronx.
I married my wife. I went to her high school graduation from college. And I worked hard. And I never knew what I was going to be or what I was going to do. My father is an artist, but struggled all his life.
And I went out there, felt I had an idea. I worked for a Thai company. They were a good company. I thought I was only 24 at the time, and I said, Can we do this? Can we do that?
And the company said, Ralph, we don't think so. I remember that very clearly. I remember my boss saying, You're not ready. But I was ready. I never thought I was going to be a designer.
I never thought I'd be standing in front of everybody. But I was ready because something told me I had good ideas. And when I had an idea, I saw someone else come up with it, and I said, Why didn't I I wanted to do that. Why didn't I do that? Why did I wait for someone else to do it?
So that incentive sort of made me go on. I started making my own ties. I found things all over the office, just rags and different kind of fabric. And I made ties, and they were unusual. They were wide.
They were handmade. They were a little different than what you see in America. They were quality. They were very high level. I delivered them in a bomber jacket and jeans for stores.
I sold them. I packed them. This is not a fake story. This is not a hype. I think I just want to tell you how life has changed and not changed at all.
I started I was given a drawer in the Empire State Building, not an office. I had the bottom drawer where I put my ties. And when someone came in, I'd go into the little showroom that I borrow, and I'd take the ties, and I'd show them. Ties were very interesting. I went to Bloomingdale's to sell them the ties, and they liked the ties.
They said, Can we make it a quarter of an inch narrow? And would you take your name off? We want our own brand on it. And selling Bloomingdale's at that time, they were the hottest store in America. Selling Bloomingdale's would have made my career.
I wasn't going to change the ties. And I didn't change it, and I walked out very upset saying, what did I do? I just passed the store. I should have been selling them the ties. I knew I believed in what I was doing.
6 months later, they came back and said, We want to buy your ties. We can't find it anywhere. I didn't plan it. I didn't know that was going to happen. There's something inside me said, Stick to your guns.
Believe in what you're doing. And throughout my career, that's what I do. Went from ties to shirts to suits to womenswear to childrenswear to home furnishings to restaurants. I don't know if I left anything out. So we talk about 50 years.
We talk about a new industry, change. What's changed? What's the new adventure? What's fashion? Where are we going?
A year ago, it was all one way. This year, it's another way. Sticking to your guns and believing who you are is what it's about. Building a team. I did not do all the product and all the things you see.
I don't do it alone. I built a great team. The team has changed and altered. Many people have been in my company for 30 years, 35 years, and 2 years and 1 year. Together, we've built a team that has a quality and a sense of belief.
Where am I? I'm there. When you say founder, it's a little it sounds like an old guy. I don't feel like that. I'm the founder, but I'm the guy that loves his product.
I love my company. I love what we're doing. I love the people. That's why I love when I go to work, I love going to work. I have my home family, my wife, my children, my grandchildren, But I have Patrice, who's just one of the great people.
You want to know how I feel about Patrice? He's fantastic. He's fantastic because he's honest. He's got the integrity. He's got the professionalism.
He's got the care, and he loves people. And he's building this company with me. We're partners. We're not separate. We're not antagonistic.
We're solid, and we've got to be friends out of respect. So what this company is about is about caring. It's about honesty. I believe in that. I believe in doing the right things.
I believe in building a company. You don't build a company with good people without treating your people together, without caring, without watching. And the philosophy of this company is change, but belief in what we're doing. You talk about age, you say, well, what's he going to do? I've heard a lot of comments.
Stocks go up and down. This company has changed many years, 50 years. Just imagine 50 years in the fashion business of doing fashion shows and coming off having great reviews and having some bad reviews. I've lived through all of it. Sometimes I
want to cry,
and sometimes I want to dance. But it's changeable. What we have and what I think was built and what is going on to the future is a concept of not fashion, but taste, style. Believe that we can do a restaurant. Where do you come off from a Thai to a restaurant?
Who are you, Ralph? Stick to your ties. That's what they already told me. Stick to your menswear. Don't go into womenswear.
Don't go into children's. Bad industry, tough industry. So all these things are things that I felt I did because I believed I was building a concept for this company. And the word change is always there, moving with the times, understanding what to do, but not being dictated to. The panic of seeing new fashion in Europe or in downtown or whatever the trend is, is great.
They're moving. But you have to move and understand your world. You have to believe in your world. And if there's anything that I really say to all my people as we work is, do you believe in this? Do you love this?
Do you want to wear this? How's the food in the restaurant? Is it great? Are people enjoying it? Are they walking in?
It's the same world. It's about taste. It's about style. It's about warmth. It's about caring.
That's what it's about. So I'm not here today to pump you, to tell you. I just want you to know what we're really about. If you haven't seen all our products, I want you to see it. Are we perfect?
No. Did we go through some tough times? Yes. But I went through tough times every 4, 5 years. This is not the first time we're on a roll.
We're moving. I think we're building a great solid team that's working and has a future. And the future is just understanding how to move and what you believe in. I believe in hotels. I believe in restaurants.
I believe in the clothes. I believe in young clothes. I believe in sports. I believe in rough wear. I believe in jeans.
They're all worlds. Some companies just do jeans. Some people just do one thing. Some people just do one thing. We go from T shirts to the most elegant woman on the fashion runway all over the world.
And we haven't faded. And that's what I believe in. I believe in this company. I am one of the biggest shareholders in the company. I'm going to stay one of the biggest shareholders in the company because I believe in this company.
I don't have my foot out the door. I don't believe that it's over. I believe it's the beginning. We have a great team that's getting better and better. We have a plan for the future for the next 3 to 5 years, and I'm very happy with it.
I'm very excited about it. I'm very excited about Jane. I'm very excited about Alfredo. I'm excited about Charles or Alice. The guy I'm not so sure.
So that's what this meeting is about. You want to know who we are, where we're going. Is Ralph staying? Is he retired? What's he doing?
Is he hip with the times or not hip with the times? I'm very cool.
So
this is the world we're in. I'm glad to meet you, and I will see you later. The program goes on. But it's very important for you to know that this is a team I love. We all make mistakes, and people come and go.
But there's a nucleus of strength and love and passion, and I feel it every day. And I think you feel it. Those of you that know Patrice and have spoken to him, Jane, you know the solid, honest, integrity, quality, and I believe in it. Thank you.
Very cool indeed. Hey, thank you for the partnership and thank you so much for the trust. It's a real pleasure to be here and to be in your company. I wanted to touch on an event that actually happened on Monday. I don't know if any of you were there.
Certainly, we were there in force, which was the CFDA event. And actually Ralph was recognized at the CFDA with a very special award, which is the members' salute. So some of you may be wondering what the hell is the CFDA. So the CFDA is the Council of Fashion Designers of America. It regroups the best American designers and brand in the country.
And Ralph was recognized by his peers with this special award for his impact on the fashion world, not only in the U. S. But around the world, for his leadership and for his efforts in philanthropy. And what you can see here, and the other visual that's going to come up, is a number of the top designers in the U. S, several of which have actually worked at Ralph Lauren during their careers, recognizing Ralph.
And every single one of them came up and said a few words about their experience with Ralph. And it was incredibly touching and incredibly inspiring and really wonderful to see the entire industry recognize these achievements over the past 50 years. So you had Donna Karan, you had Michael Kors, you had Alexander Wang and many others I'm sure you can recognize here. But it was a very special event. And so Ralph, congratulations on this amazing recognition.
So as I mentioned earlier, so where do we go from here, right? We're focused on the next 50 years. How does this story continue? Where do we take this great company and this great set of brands moving forward? So for us, it's 1st and foremost all about performance.
And the reason this company has been so successful for so long is about the focus on performance. And performance starts with clarity of direction and clarity of purpose. So I actually want to spend a little time on that, so you understand what our North Star is for this company moving forward. We've always had purpose. You've just heard Ralph, right?
He's oozing purpose. But we were never really explicit about it. It was always implicit. And we felt the need to capture it for employees around the world, for our partners who interact with us on a daily basis around the world as well. So I want to spend a couple of minutes taking you through our purpose, the thinking behind it, because again, it is a North Star for us moving forward.
So when you think about Ralph Lauren, and I'm sure if I asked all of you, you'd probably come up with very similar themes. There are a few concepts that constantly come back, okay? The first one is this notion of inspiration. We invite people to hope, to think about possibilities. We invite people to dream.
So the second word that consistently comes up on this for this brand is dream, is providing people the opportunity to be anything they want to be. And last summer, I spent some time with Ralph actually in Colorado, and I think it was one early cold morning, we were outside having breakfast, looking at the amazing scenery from the ranch. And we had a dialogue on, okay, so what business are we in? We're The Ralph Lauren Company, what business are we in? Do we sell shirts and shoes and jackets?
Are we in the hospitality business? What business are we in? And we concluded we were in the dream business. And so to some extent, we're actually closer to Disney than we are to other apparel companies. So think about that, and I'll give you illustrations throughout the day that kind of actually connects to that and how we think about our company and what we want to do moving forward.
So the dream, obviously a critical part of who we are. We're also about a better life, right? And every one of you, every one of us, anyone on this planet aspires to a better life. The definition of a better life depends on the individual, so we don't pretend to dictate it. A better life is not about material status.
That's not the way we want to portray it. We want to give people hope, a sense of possibility. And then we achieve all this through sorry, I'm one click behind. We achieve all this through authenticity. What we do is real.
You just heard Ralph's story, and I love the Thai story because I think it says so much about who we are as a company. What we do is real. There's no fantasy land, it's not far fetched, what we work with are real products. Think of our military jacket as a source of inspiration for things that we do with our products. And then finally, we're timeless, right?
We're about timeless style. We don't want to get jerked around by trends. We want to be in touch with trends, but we don't want to get jerked around by trends. I love this recent quote from Jay Z. I don't know if you've seen it on it.
It. He came out with it as part of an interview, I think, 4 or 5 months ago. And he asked the interviewers, they were talking about fashion. He said, do you want to be a trend or do you want to be Ralph Lauren? Right?
And that captures, I think, very nicely how we think about the brand. We want to we create for longevity, and you've always I think you've heard this quote from Ralph, which is that fashion is over quickly, but style is forever. So when you put these concepts together, these ideas together, you get to the following purpose for the company, which is our purpose at Ralph Lauren is to inspire the dream of a better life through authenticity and timeless style. This is our North Star. These guides are decision making.
This will be enduring. I think this really captures the essence of the company incredibly well. And so we've now have it captured. We're sharing it with every single employee around the company. So purpose is the starting point.
Now obviously, purpose is not sufficient to deliver performance. So what I want to do now is actually take you through all the other elements that we have developed as part of our strategy for the next 5 years, but grounded in this purpose. So what I'm going to do over the next roughly 40 minutes is cover the following. 1, I want to give you a progress report since the last Investor Day, right? Number of you were here 2 years ago.
I want us to kind of take a chance to just step back and say, okay, what's been accomplished since then? Where do we stand on the commitments that were made 2 years ago? Because we are a company that believes very much in delivering on our commitments, promises made, promises kept. Then I want to ground all of us on the landscape we're currently operating in. What does the category look like?
What do we know about the consumer? What do we know about the brand as a starting point? Then we'll talk about our strategic plan for the next 5 years. I will top line it and then a number of my teammates will come later and provide more color and perspective on the various choices. Then you'll hear about how does this translate into numbers and what does that mean in terms of financial goals at the end of this.
And then we'll close or I'll close on our most important assets, which are the people who are going to enable us to bring all this to life. So that's the framework I'm going to share with you, and then you'll hear from a number of our individual leaders here. Rawls coffee, enjoy it outside. Okay. So let's get started with progress report.
For those of you who were here 2 years ago, we committed as a company in 2016, actually, I think, eerily to the day, 2 years ago, the following. 3 main things: 1, drive quality of sales 2, strengthen operational effectiveness 3, return the business back to growth. So where are we kind of 2 years in? Overall, I think the headline is there's been strong progress on quality of sales and operational efficiency, but we're clear we're behind our goals on growth, So if you look at some of the achievements from the quality of sales, and we've talked some of these, Jane and I, with you on the recent earnings call, strong AUR improvement, strong progress on getting the right footprints in department stores, so we show up the way we need to show up, Significant reduction in lead times, you heard that we hit our target of 90% of the business in less than 9 months. Reduction in inventory, down 30% over the past couple of years, major progress on this front.
Significant progress on expense reduction and then a generation of additional $1,000,000,000 in cash, and we'll talk later today about how we plan to utilize that cash. And if you read the release this morning, you already have a bit of an insight on what that's going to look like. Now at the same time, we also recognize we're now where we wanted to be from a growth standpoint. So moving forward, the focus for us now is how do we reignite quality growth and I insist on quality. How do we reignite quality growth while fueling the momentum we have on productivity?
Because ultimately, what we're all about is long term sustainable value creation, right? And I don't know if you saw the interview this morning with Warren Buffett and Jamie Dillon, who were talking about lead times and how to think about time frames. And our time frame is obviously we want to deliver on a quarterly basis, but we are looking at long term here. We are planning for we're thinking the next 50, obviously, we're going to take this in chunks. But we are really thinking to what's the what do we need to do for this company for the next 5 years, not just for July, August, September.
So that's kind of where we are relative to those commitments 2 years ago. Now let's talk about the context we're currently operating in. And I want to start with the category, and I recognize most of you know this, right? So what I want to do is just highlight a few key points here. First of all, we are fortunate to be operating in a large growing category.
Take the fashion world, it's over $1,000,000,000,000 and the growth rates expected over the next 5 years is between 3% to 5%. So this is a healthy business to be in. Few things to tease out in terms of what the growth drivers are going to be over the next few years. First of all, and I know this is not a discovery for any of you in this room, millennials, right? Millennials by 2023, so in 5 years, the forecast is that millennials will represent 50% of the market.
2nd, China. The forecast is that within the next 5 years, Chinese consumers, whether they're consuming at home, in their domestic markets or when they're traveling, will represent 40%, 40% of the market. So when we talk about China later, you'll understand why we're so focused on making sure we establish a strong presence in China. Digital is expected to be the key driver of growth where the multiples that are quoted is that growth will be 5 to 10 times faster in the digital world versus the brick and mortar store world. But there is an important data point on the role of stores in the future.
The role of stores changes, stores don't go away, bad stores go away, boring stores go away, but stores don't go away. And stores will have a role to play, the forecast is, in at least 80% of the purchases moving forward, okay? So millennials, China, role of digital, but stores still have an important role to play. It's just changed. So that's kind of the general landscape.
Now I could talk about the consumer forever because I'm very passionate about the consumer and it's core to what we do. There's one thing I want to actually just highlight on the way the consumer behavior has changed over time. So the consumer behavior used to be very linear. I see an ad in a magazine, I like the product, I go to my local store, I try it on, they have my size, I buy it, I go home and wear it, linear, simple. So you can see from this graph here, life has changed significantly, and with that come actually a lot of opportunities.
So I'd like to introduce Lily. Lily is 26 years old. Lily lives in Brooklyn. Lily works for an advertising agency. She's very modern and active and has a whole bunch of friends.
And what I'd like to do is talk about Lily's path to purchase because it's core to how we think about the consumer and it's core to what we do. So I'm not going to take you through every single detail because we could spend the afternoon on it, but I just want to share just a little bit of her path to purchase. So we've mapped this horizontally across time and vertically across the different channels that she interacts with, right? So Lilly will start and this is a path to purchase to buy a sweater. So Lilly will probably start on Instagram, and she'll be inspired by a post of this sweater and looks beautiful.
And then later on, she might get an e mail from a brand that kind of showcases an influencer. Then she'll go check the sweater online, but she actually really wants to try it on because it's an important purchase for her. She can't really tell online whether it's exactly what she wants. She goes to the store, and unfortunately, while they have her size, she really doesn't like the way it looks. So she tries other options and then she finds one that she likes, but she's not 100% sure.
She wants to check with her friends first. So now she's left the store, she's texting her friends with a picture of her wearing the sweater in the store. What do you think? She gets feedback from her friends, decides to buy it, la, la, la, to take all the different steps. And then in the normal world, she would stop there.
She'd buy the sweater and we'd be done. But you know as well as I do, it doesn't stop there. There's another phase where now Lily talks to her friends about the sweater and how she loves it and how good it looks and so on and so forth. So this is a real life example of a consumer that we are targeting. So what are the implications for us?
First, we have to understand that path to purchase. It is critical for us to understand how she behaves. Otherwise, we cannot be effective, right? So for every consumer group, we're mapping the path to purchase and this then helps us decide how we allocate our resources, where we need to show up as a brand, because there are many opportunities here for us to show up. And there are areas here if we don't show up, we completely miss out.
So that's the first one. 2nd point, again, digital. And again, I recognize this is an obvious statement, right? But we have to be outstanding at digital. This is new world for us.
We have new capabilities. You heard actually Ralph introduce Alice, our new Chief Digital Officer. We have a new Chief Information Officer in Janet Sherlock, who you'll have the opportunity to meet over lunch. Critical for us to be experts in digital, not just our own site, but every opportunity the consumer has to interact with us from a digital standpoint. And then the final point, and this is more in the brand building area, is this path is super fragmented, but we cannot show up super fragmented as a brand, otherwise we don't have a brand.
So it's very important for us, you'll hear that throughout the day that we continue to build a brand that's consistent, that's coherent, both from a value standpoint and also from an executional standpoint. So that's Lily and her path to purchase. Now I want to talk about our consumer. So to get back to winning as a company, it was critical for us to deepen our understanding of the consumers we want to serve. And so we actually placed over the past few months the largest ever research ever done in this company, 12,000 consumers, 10 countries, accessible luxury consumers, luxury consumers, Ralph Lauren consumers, Labs consumers and consumers who had not interacted with our brand.
We spent a lot of time analyzing this. We could probably spend 3 days together going through all the learnings. I'm sure we'll share them over time together. But there are a few things that we picked up, some of which I think will be surprising to you. I want to touch on the key highlights.
So let's talk first about the makeup of our consumer base, who we appeal to across the world. So first of all, Gen X is 40% of our business, right? Men and women, so that's really the core. So sometimes I hear, well, you guys are a boomer brand, aren't you? No, we're not a boomer brand.
We love the boomers. We love all generations that we appeal to, but we're actually the core for us is Gen X. 2nd point, millennials, okay, 50% of the market by 2023. So I hear, gee, you guys, you do not appeal to millennials. What's the future look like?
You can't appeal to millennials, okay? And honestly, that's a myth. 12,000 consumers, 10 markets. In most of our markets around the world, we're actually above fair share in Millennials. So what does that mean?
If Millennials is 30% of the population, we have more than 30% of our user base is Millennials, okay? I found this to be an incredibly exciting learning because I think it busts this myth out there that this company doesn't appeal to millennials. That myth is just that, it's a myth. We appeal to millennials. Now, can we do better?
Do we want to do better? Of course, right? So internationally, we are ahead of fair share. In the U. S.
Among men, we're at fair share. And in the U. S. Among women, we're slightly below fair share. So we recognize things aren't perfect and we have more work to do.
But this brand is resonating with millennials, men and women in New York, in Chicago, in L. A, in Tokyo, in Hong Kong, in Paris, in London. 3rd point is diversity, right? Ralph Lauren, not very diverse. Incorrect as well, right?
You look at the makeup of our population in the U. S. From a customer base, this is U. S. Data, 30% of our consumers are diverse in the U.
S, either Black, African American or Hispanic, Latino. And as the population continues to grow in diversity in the U. S, we're well positioned to really connect with all consumer groups. So we were excited by this data and I have to say some of us internally were actually surprised particularly by the millennial and the diversity point. So therefore, we feel good about where we stand relative to the consumer groups we need to appeal to, but we're also in touch with reality.
We need to continue to raise the bar, okay, across the board. And I did not mention Gen Z here. You'll hear from Jonathan later today. Obviously, we want to appeal to that generation as well. What's been amazing about this brand is its ability to stretch generationally and ability to stretch across categories.
As long as we stay true, to Ralph's earlier point, to our values, to what we stand for, and we maintain a very high standard of execution. So those were some insights from a consumer user base appeal standpoint. Then we also looked at how our brand was perceived. And so likewise, I could take hours on this one and Jonathan and I have a lot of good discussions on how the brand is perceived and what we need to do moving forward. So the consumers we interviewed told us the following that we have very clear strengths in timeless, sophisticated, effortless, all American, put together and the list goes on, but we wanted to focus on the key elements.
So very strong base to build off. And what's exciting about these values aside from the fact that we're well positioned here? These are relevant today. They were relevant 20 years ago. They're relevant they will be relevant 20 years from now.
And not just in the U. S, but around the world. So we're actually very excited about that. Now what we also learned is we have some areas of strengths in the in 3 other dimensions, uniqueness, modernity and urban, which if you look at the brands that are doing really well in the market today in our industry, these brands these equities really come through clearly for these brands. So we have a great starting point here.
And our job now is to continue to build on all of this. So we continue to evolve the brand while staying true to the values that have defined us, okay? So that's kind of the consumer profile, brand perception that we got from the survey. And if you have any follow-up questions, obviously, we'll be happy over time to share all the insights that we've gotten from this amazing research, which we intend to do actually on a regular basis, again, because the consumer, the consumer, the consumer is critical for our success moving forward and our understanding of him and her is core to everything that we do. Now as we kind of assess the landscape together, I wanted to also talk about some of the strengths that we have moving forward as we look to the next phase of development for this company.
And I'm not going to touch on every single one of them here, but just some things to highlight, right? This brand has amazing reach. And we keep having debates on whether our awareness levels are 90%, 95% or 87%. They're up there, right? We're up there with the Starbucks of this world from an awareness brand recognition standpoint.
We're a true lifestyle player, right? So again, we're not a T shirt brand, a shirt brand, a jacket brand, we're a lifestyle brand. And what's amazing about this brand and what's been built over time is its ability to be credible across many different categories. You heard Ralph talk about, we started in Tides, right? A drawer in Rockefeller Center with Tides.
We've got one of the hottest restaurants in New York City. We just opened a coffee in Hong Kong, right? We've got a very exciting home business that is significant growth potential for us. So this brand is a lifestyle brand that plays across apparel, accessories, beauty, home and hospitality, a real strength and I think a real differentiator relative to our peer set. And then the other thing I'd like to call out here is the picture in the middle, you may recognize the young man that's on his horse there, is the fact that this company is real, right?
We don't need to invent our story. It's real. It exists. We've got 50 years of heritage. We have 50 years of values that are actually timeless, relevant 20 years ago, relevant today, will be relevant 20 years from now, wherever you go around the world.
We have a number of strengths to build on. Now we're also in touch with reality. If everything was perfect, then we wouldn't have had the challenges we've had over the past few years, right? And we'd be growing already, which we're not. So we recognize that as well.
We're not in an alternate planet. But at the same time, we're actually quite excited about the foundations that we can build off. And we know, and you heard it from Ralph, we need to continue to evolve. We need to continue to raise the bar on execution. We need to continue to do a better job connecting with the consumer.
So as we look ahead now, kind of how you this gives you a bit of a landscape assessment. As we look ahead, I think there are really 3 fundamental questions that we want to answer. And actually, as I've met with a number of you over the past year, I know you have these questions in mind. And candidly, these were questions I had also when I took on the job about a year ago. All right.
And the three questions are, one is, okay, how are you guys going to drive relevance across all the consumer touch points on a regular consistent basis? 2, and I suspect this is your number 1, 2, 3, 4, 5, 6, 7 question. When are you going to get back to growth, right? When are you going to get back to growth globally and in North America, as we'll talk about today? And then how are you going to do that?
And then 3, because at the end of the day, it's all about value creation, is where is the value creation going to come from? So our intent today is for you to leave with clear answers to these questions because they are obviously critical to our future. So in the remaining 20 minutes, what I'm going to do is give you an overview of our strategy and how we're attacking each one, and then you'll hear from my teammates on specific examples and illustration of the approaches. So here's our framework. Success is simple, at least the way we've defined it.
Actually, one of our Board members coached me when I started a year ago, he says, this is Hubert Joly at Best Buy, he says, business is easy. Only need to do 2 things. You need to increase sales and reduce cost. If you do those two things great, everything else will be perfect. So we're following that guidance.
So what's the definition of success for us quite simply, right? Is to deliver sustainable long term growth, quality growth and value creation. That's what we're all about. That's what everything you're going to hear today is all about. It ladders up to that, sustainable long term growth and value creation.
We have 3 simple but powerful guiding principles. 1, in case it wasn't clear, putting the consumer at the center of everything that we do. 2 is continuously elevating and energizing our brands. And then 3 is balancing growth and productivity. And then we have 5 strategic priorities: win over a new generation energize our core products and accelerate underdeveloped categories drive targeted expansion lead in digital, not participate in digital, lead in digital and operate with discipline to fuel growth.
So let me take them 1 by 1. Went over a new generation. So here our goals are relatively straightforward as well. We want to recruit several 1000000 new consumers annually, right? As we do the math, we have roughly about 50,000,000 consumers around the world.
50,000,000 consumers, that is a pretty awesome number as a starting point, right? But we know growth will come from bringing new consumers into our franchise. So we need to attract millions of consumers every year around the world. We're going to put deliberate focus on millennials and women. In parallel, we also want to increase our share of wallet among our current consumers, among the famous 50,000,000 with deliberate focus on men and Gen X.
And then we have 3 strategic initiatives to go after that. The first one is really around storytelling, right? It's elevating our brand story, providing greater experiences through all the touch points and along this famous path to purchase that I talked about earlier. The second one is more investments in marketing and we've announced this in prior calls, but we're confirming that, and more targeted investments in marketing. And you'll hear that from Jonathan in terms of how we're operating that, again, following Lilly's path to purchase.
And the final one is to weave the brand into the cultural fabric of the markets we operate in. We want to be part of the culture. The reason this company has been so successful for so long is it has been part of the culture. And as we look to approach new markets and continue to win our existing markets, we know we need to be part of today's culture. So you hear us talk about how we're going to leverage influencers differently, special events differently, so that we really weave this brand into the fabric culture of each individual market we operate in.
So again, Jonathan is going to give you a lot more flavor and color on this. Two examples I want to touch on to illustrate how we're bringing this to life. First one is the Polo Bear. I told you we were closer to Disney than we are to other apparel companies. So the Polo Bear, the Polo Bear is an amazing asset.
He's 28 years old, I think this year, still looks quite young. We've decided to make it the main feature of a holiday campaign a few months ago. And so we told interesting stories in store, right? We had live polo bears. You could even do meets and greets with the polo bear and pictures with the polo bear.
I think it was actually pretty exciting to see all the Instagram pictures of people just walking by our windows on Madison Avenue, and you just saw an example of that. So we have stories telling stories in stores. We had videos that were telling the story online, on WeChat, on Instagram. So storytelling was an important part of this. We then had targeted messaging, really showcasing the Polo Bear products as the best holiday gift you can think about, and so you've got some examples of that here.
And then we leverage influencers around the world. So we organize special events. Yes, I know we brought influencers over for the Polar Bear. And they're excited about it. You can see some pictures here.
We have hundreds and hundreds of pictures of influencers wearing our Polo Bear products. So we did events in New York, in London, in Hong Kong, Tokyo, name your city. We basically had activities there. And the reception was amazing. And this contributed to the improvement of our results over the holiday period.
And the Polar Bear has really become an icon for us, right? And to some extent, I think the Pony player needs to be careful because the polar bear is starting to rival the pony player to some extent, and we have a lot of people who are really desperately asking for products with the polar bear. So we're going to continue to leverage the polar bear moving forward. But this is one example of how we're with a smile, telling a different story, connecting with consumers where they are in a way that's interesting, energizing and inspiring. 2nd example concerns limited editions.
So we have 50 years of heritage to tap into. We have a library not very far from here, where it's just the floors of floors of product and creations over the years. We have so much we can leverage. And so we are working, you've seen us do this with Stadium, with Snow Beach and now with CP93. We're working on these limited collections, limited editions, famous drops to use modern terminology in the fashion world.
This one draws on our successful '90s collection, which was a big hit at the time of the America's Cup and so on. It's live as we speak. So you can run to our stores after this and go buy it or go online. And same thing here, we're leveraging different media platforms to tell the story and to connect with the consumer in a unique way and to get them excited about not only this collection, but to get them excited about the brand, right? And we're using these limited editions as a way to energize the brand to inject inspiration and passion into the overall Ralph Lauren property.
Early days, I think Valerie you quoted a couple of days ago some initial numbers, which I won't share because that would be confidential information material information, but we're excited about the initial reaction we're getting from consumers on this. We were thrilled with the reaction we got on Stadium, thrilled with the reaction we got on Snow Beach. And so you can expect us to continue to do these kind of things along the lines of telling a story to the consumer, getting unique experiences to consumers. So that's the first strategy and I don't want to steal Jonathan's thunder any further, so I'll let you talk the rest of it. 2nd strategy is energizing our core product and accelerating our performance in high value underdeveloped categories.
And our goals here are pretty straightforward. Over the next 5 years, we want 50% of our growth to come from our core categories and we want 50% of our growth to come from the 5 underdeveloped categories that we've called out. We have 3 main strategic activities to support that. One is energizing our core, right? The core needs to have an injection of constant energy and inspiration.
So how do we do that? We work on quality, we work on product innovation, we work on bringing excitement, and I'll share with you an example in a second. So the second is, we've defined the 5 core categories, I'm going to talk about them in a second. And it's really going after those aggressively. We've started to do that and some of them are seeing some very encouraging results.
And then the last one is, again, to make sure we're giving the consumer in the right channel, the right product, is to tailor our offering by geography and by channel. So it's not, well, this is the plan for Macy's or dealers, therefore, this is the plan for the world, right? That's not how we want to operate this business. So let's take a couple of examples. The Polo shirt is honestly one of our icons, one of our core products.
And I often get the question, how can you innovate on the Polo shirt? You've probably done every color in the rainbow. What more is there to do? There is so much more to do on this, right? And we're in a leadership position, obviously, in this category, and this category is fundamental for us moving forward.
So one, we're going to continue to raise the bar on quality, right? We want to make sure we consistently offer our consumers superior quality that delights them every time they wear the product. 2, is we're going to innovate on the product, right? And we're innovating on fabrics, we're innovating on fits, we're innovating on feel, right? And you can see Justin Thomas here.
Justin Thomas, one of our spokespeople. Justin Thomas, the new number one golfer in the world. So we're actually excited about the partnership, and he's a terrific individual, and I think he embodies the values of the brand very well. So he's wearing one of our latest shirts here. You can't really tell the technology on here, but it's got special stretch and special feel benefits.
And then the third area for us is just injecting excitement into this line of products. So we've done limited editions. We did 5 over the past year. Everyone sold out just like that. Very excited about the reaction that we see.
We will continue to do that. You can see one example here. I can't remember what we call this one. What do we call this one, David? The Tour Jacket.
All right. So you see the Tour Jacket. And then we're doing customization. And David is actually going to share a lot more about how we're thinking about customization as a brand building tool and as a business building tool. And here, there's an example of something we did during the U.
S. Open last fall, and we're obviously going to repeat that this coming fall. So that's an example of bringing one core icon to life and energizing it, so we continuously connect with the consumer. But I have many examples, right? We're doing this on the military jacket.
We're doing this on the American flag sweater. We're doing this on the classic cable sweater and so on and so forth. So very important for us not to take our core for granted, to continuously energize, and we have amazing strengths in our core to build on. And then the second product initiative really concerns the high value underdeveloped categories. So these are categories that are big, where we are generally present, where the consumer is telling us we have a basis to win, we are credible, we are relevant, but we were significantly underdeveloped.
And we've talked a couple during our earnings call. So these are the 5 that we've called out that we're going to go after. Denim, and you hear from Valerie some exciting results. The overall team is delivering on that. Wear to work, work style, pick your name on how to describe it, but basically the what you're wearing today.
Outerwear, footwear and bags, which is a combination of small leather goods and handbags, okay? Those are the core 5 categories that we're going to be driving disproportionately. And Valerie is going to share a lot more about that, so I'm going to stop here. But you can see this duality of half the growth comes from the core, half the growth comes from these underdeveloped categories, where we are already present today. So that's not like these are categories where we have absolutely no experience.
We just haven't put the emphasis on it the way we're going to moving forward. So we've talked about winning over a new generation. We've talked about energizing our core and accelerating our performance among high value underdeveloped categories. Now I want to touch on our 3rd strategy, which is about targeted expansion. So our goals in this space are twofold.
1 is accelerate the role that international plays for the company. So over the next 5 years, we want international to represent at least 45% of the company. And over time, it will be 50% and so on, but that's kind of the specific target we're fixing for the next 5 years. And then we need to get back to comp growth, right, and then stay there. So those are the 2 goals as an organization that we're going after.
We have 5 strategies, strategic initiatives to enable this. The first one is to establish a balanced ecosystem in every market, and you're going to ask me what the hell is ecosystem, and I'm going to explain that in a second. The second is to expand in China. 40% of the market by 2023 will come from China, domestic, international. We have no choice.
We have to win with the Chinese consumer, and we will, and we are, and we will. The third is to accelerate DTC, right? And I expect the balance between DTC and wholesale to shift more towards DTC over the next few years with a distinctive focus on digital, of course, and digital commerce and smaller format stores. And you'll hear from both Jeff and Howard about how we're thinking about that moving forward. 4 is we need to invest in our fleet, right, in our existing fleets.
We have amazing fleet around the world. We haven't necessarily invested as actively as we've needed over the past few years for a variety of reasons. Moving forward, making sure we offer the consumer an amazing shopping experience, we are going to make sure that we are elevating the experience in our existing fleet, the one that we've deemed is right moving forward. And then finally, partner with high quality wholesale. So Jeff and Howard will give you the world tour, will take you through the specific plans, but I wanted to cover a couple of things.
So first, we think of our distribution model as an ecosystem, right? And some people might use the word omnichannel. I like ecosystem better because ecosystem is alive and it's interacting. Omnichannel is more of an addition of channels. And the whole idea is to provide the consumer with a consistent elevated experience across all these touch points.
We talked about Lilly earlier. She's back. Lilly is channel agnostic, right? It's not like, well, Lilly is a millennial, therefore, she only shops online. If life were that simple, that'd be great, but that's not the reality.
Lilly is channel agnostic. Lilly will move across channels. We have to deliver for her a fantastic experience across all the channels. And so we are very focused on making sure that in every key market we operate in, we have this balanced ecosystem between our own sites, between the pure player digital pure players and social commerce, our full price stores, our factory outlets and high quality wholesale. And there are some markets where off kilter and where we're going to reinvest in a particular element of this ecosystem.
You'll hear from both Howard and Jeff on this, and we have actually an exciting experiment going on in one part of the country here that Jeff will take you through that kind of really brings this to light. But for us, Lilly is at the center, we're following her shopping behavior, and we want to make sure wherever she decides to go, she gets a great brand experience and wherever as much as possible it's connected, right? So we can kind of follow her. And I remember our conversation, Jeff, around it's really more around we want to follow the consumer. We don't want to follow the channel, right?
And so that's a strategic shift for us, which is we're grounded in the consumer. If she wants to go left, we're going left. If she wants to go right, we're going right, right, that way. So that's kind of the omni channel approach. So it's a combination of own and partner channels, combination of digital and brick and mortar.
This comes to life obviously in North America, you'll hear from Jeff on that, and then around the world. So the second thing I wanted to touch on is just where are the international opportunities on this business, right? And sometimes we get the question, well, you guys have been around for so long, you've kind of tapped out all your growth opportunities, right, aside from maybe China, but is there still growth elsewhere? The short answer is absolutely, right? So there are 2 that we really want to focus on distinctively here.
One is Mainland China, where we have the benefit I think it's a benefit of being highly underdeveloped. So Howard, we have massive growth opportunity and you're already with your team taking advantage of it, which is great, right? So one is China. The second one is Europe. So in Europe, we have some stronghold markets, right?
The U. K. Is a stronghold market for us. But actually, there are a number of markets where we're significantly underdeveloped. Think Germany, massive market, right, 8 +1000000 consumers, very underdeveloped in Germany.
Southern Europe, very underdeveloped in markets like Italy, and to some extent, Spain as well. So we're going to take this ecosystem approach and leverage it across China, across select European markets, and Howard will tell you more about this. But the general headlines in China are, our presence is limited across every single one of these touch points. So it's not like we've got amazing presence in our own stores and we just need to fill out the other elements of the ecosystem. Across the board, we need to establish very strong presence, and I think we've got some really nice momentum there.
You saw our latest results in Mainland China Q4 fiscal 2018 were up 34%, okay? Those are the kind of growth rates we want to deliver and need to deliver. We've got a small starting point, so we want to aggressively accelerate our growth there in a quality way. And then in Europe, same thing. Actually, what's exciting about Europe is the team has done a really nice job on the digital commerce front.
So we've got a great starting point from a digital commerce standpoint. But we've got to round that out with better presence across all of these various channels. So you'll hear more from Jeff on the overall ecosystem and Howard on how this kind of plays out, both in China and in select European markets. Now let's move on to our 4th strategic priority. Lead with digital.
So we can have many targets here. We just focused on the commerce part of digital, but there are many different dimensions. We want to lead in digital. We expect $500,000,000 growth over the next 5 years from digital commerce. And I'll come to define what we mean by that, right?
So we're looking for double digit CAGR on digital commerce double digit CAGR for the next 5 years on digital commerce. 3 key initiatives here. One is connecting digitally with the consumer throughout the path to purchase before, during and after the purchase. Jonathan will talk about that, so I'm not going to elaborate on that any further. 2nd is to really make sure that we're winning across all the digital channels, not just our own site.
And third is actually more looking at how we run the company and how we operate and leveraging digital in the way we operate internally and leveraging digital in the way we interact with our partners, whether that's our suppliers, whether that's our wholesale partners. So let me talk the second and third point here. So we just talked about the ecosystem, right? And obviously, the digital commerce part of the ecosystem is the fastest growing part of that world. So for us, it's 4 different areas that we want to focus on.
First of all, an outstanding ralphlauren.com experience, which needs to be our digital flagship. We relaunched it a few months ago in the U. S. We're in the process of relaunching it in Europe. We're building functionality.
We're improving the interaction for the consumer. And this obviously needs to be absolute gold standard for the way the brand shows up and for the experience we provide consumers. 2nd is digital pure players and we're actually developing a lot of fantastic partnerships around the world, whether that's Zalando, JD dotcom, Tmall, Mr. Porter, Zappos here in the U. S.
And the list could go on and on, as we continue to expand in this space. 3rd area is social commerce, right? It's having the ability to buy through Instagram, through WeChat. And frankly, this is new space for us. It's critical because most of our consumers are expecting this now.
But this is space where actually Alice and the team are helping us build the capabilities to make sure that we really win big in this space that's so critical for the consumer that we serve. And then the final one is department.com, which I don't want to discount, right? And you saw some of the recent announcements from our wholesale partners recently. I don't want to discount because it is a very large channel. It's a growing channel, and we're growing share.
And we've been growing share for a while, and we're continuing to grow share. So we are winning in this space, right? And for several of our wholesale partners, this is now about 20% of their business. And I expect the percentage to continue to increase. So we've got momentum here, we want to continue to drive it.
So we're focused on driving commerce through these four angles. There's a booth that we have over lunch around leading and digital, which will be right over there. So if you have questions, you want additional perspective on how we're thinking about this, Janet Schurlock, our new Chief Information Officer, is sitting right up there and Alice Delarante, our new Chief Digital Officer, will be there to answer any of the questions that you have. And be nice with Alice, she's only been here 7 weeks. So she hasn't doesn't have yet all the answers.
So digital commerce, but also digital in terms of the way we work. And we want to use digital to improve our speed, our accuracy, our effectiveness, our efficiency inside the company. And we want to use digital to also provide an amazing experience, seamless experience to our consumers throughout the overall ecosystem. So we're doing a lot. Janet is pushing us, which is great.
I'm not going to talk every single element here because it could take hours, you might over lunch. But there are 3 elements I actually would like to call out. 1 is big data, right? And we're actually building data lakes so that we can really have access to all the information that's available around the world and use it for better insights for buying, for better insights, for allocating our resources, for better insights in interacting with our consumers. So that's the first big investment, big area for us.
The second one is digital product creation or 3 d CAD, pick your terminology to describe it, computer aided design, where we are actually beginning to adopt this technology as an organization. The first areas of the business are Polo Men's Business, and we're already seeing the benefits, where this is helping us dramatically reduce lead times with our suppliers from weeks to days. This is helping us dramatically reduce costs. We don't have to ship samples back and forth. And so this is an area where we're going to be investing across the board, so that we have the best possible capabilities in terms of product creation from a digital standpoint.
And then the third area is our FID, right? And actually, I'm very excited about what the team is doing on RFID to make sure that we understand how to get the right product to the right location at the right time with the most efficient possible inventory and serving the consumer need the best way possible. And more to come in this space, but I think the future is actually quite exciting in terms of what's possible for our supply chain to digitize our supply chain. So potential is huge here. And so digital for us isn't just the way we communicate to consumers, isn't just commerce, it's also the way we work inside the company and with our partners.
So now the 5th and last strategic priority that we have, operate with discipline to fuel growth. So this one is the one that's got the largest number of goals, just because the area kind of requires it. So among our goals, and you've heard us say this before, we want to expand our gross margin, we want to expand our operating margin. We want to continue to reduce SG and A as a percent of sales, while increasing marketing, okay? But the overall SG and A as a percent of sales, we want to drive down.
We want to improve continue to improve AUR. You see we have good momentum in AUR. We want to continue to make progress on lead times. We talked at the last earnings call. Target is no longer 9 months now.
We're working on 6 months. 3 months, what's required to win with the consumer and with the competitive landscape today. We want to continue to make progress on SKU productivity and obviously continue to stay diligent on inventory. This organization has done a fantastic job on inventory, and we need to continue to drive that. We've got really nice momentum, and I'm excited about the capabilities that have been put in place for this.
So Jane gets the pleasure of sharing the specifics on all of these goals, so I'm not going to give you any specific numbers. I do want to take you through the 5 key initiatives that support this. 1 is simplified end to end operation. We have historically been relatively siloed as a company, and I think that characterizes the industry. But it's pretty clear today based on what the consumer is expecting, based on what our wholesale partners are expecting, we got to move a lot faster.
And so we have to break down these silos. And so we've got a major corporate initiative that we've called not very creatively end to end to make sure that we've got the seamless connection and we're not working things sequentially, but we're also working things in parallel and in partnerships across departments, so we can move and have the ability to react to what's going on in the market and what's going on with our business. 2nd strategic initiative is leveraging inventory across channels. So believe it or not, we have separate inventory by channel. You probably believe it because that characterizes the industry too.
So on the one hand, you kind of go, okay, not great. On the other hand, you go, okay, massive opportunity. So I'm actually very excited about the fact that we're there because as we harmonize inventory across channels, we get a lot more efficient on our assets and we serve the consumer in a much better way. So you will see us progressively combine our inventory across channels. Our first focus is on our web our e commerce site and our stores, and we'll be doing that over the next few months, and then we'll continue to do that across the various channels.
3rd area is a fast, flexible supply chain. And I guess in the world that we operate in today, flexibility and agility with all the discussions around tariffs and so on is critical to us. So we have built and will continue to develop a supply chain that has this agility and this ability to deliver the best cost, the best quality with outstanding service. 4th area is strategic revenue management. So what do I mean by strategic revenue management?
It's being much more strategic on pricing and how we're pricing and pricing architecture. And there's a lot of terrific work going on both in the core and in our underdeveloped categories, and Valerie will talk about that, where we're really being super strategic in terms of the tiers that we want to play in. And then the second, which is key to this world, is greater yield on our promotional activity, right? And the reduction of our promotions being more targeted and being more effective is a key source of value creation as we do this well. And then finally, I have a very simple principle, which is the consumer should not have to pay for our waste, whatever waste we create.
So we are driving a mindset of challenging every cost. We're Ralph Lauren, right? So we will never compromise on our standards of execution and our standards of quality ever. But we will challenge every cost and ask ourselves, is there a way to do this better, cheaper? And actually, we have an effort going on now that's yielding a lot of exciting results.
And you've seen the gross margin expansion from the company has been enabled by this mindset of challenging every cost. So a couple of examples of what we're doing here, and then we'll have actually a booth right over there with Halliday and Bill, who are right here, over lunch if you have further questions on how we're thinking about our supply chain, and so on and so forth. So a couple of examples. First example is platforming, fabric platforming. So historically, we've actually had separate fabric choices by brand and by category, okay?
And what's happened over the past, what year, holiday, year and a half, year, is we started to started this platforming so the brand can have access to the same fabric choices across categories. And now what we want to do is for the company to have access to all the fabric choices. And what does that do? That enables lower cost, that enables better quality, that enables greater innovation. We've done this in men's, and we're actually really seeing the benefits.
And the expectation is for us to complete the platforming over the next 18 months, so that every single designer in our company has access to a broad range of options and is not constrained by individual categories or individual brand. We've also seen significant benefits from a lead time standpoint, right? And in our objective to accelerate our pace of bringing things to market, this is obviously a key enabler. Second thing I wanted to talk about is sustainability. Sustainability is obviously critical for the planet that we all live on, and it's also very important for the consumers that we serve.
We're clear that we're on a journey as far as sustainability is concerned. We've got a number of efforts underway, and we are committed to continuous improvement. Our key focus areas, as you can see here, are around materials and traceability. They're on operations, things like usage of water, what goes back in the water and product innovation, right? And you're going to hear actually pretty cool example, a couple of cool examples from David actually in a few minutes on how we're bringing sustainability to life in our product innovation.
And we recently became a member of the Better Cotton Initiative, BCI, which drives a higher environmental standard in cotton sourcing. So this is an important area for us moving forward because it's important for the business and it's important for our consumer. So we just talked our 5 key strategic priorities. Well, actually, I just talked our 5 key strategic priorities. Win over a new generation, energize core products and accelerate growth in underdeveloped categories, drive targeted expansion, lead with digital and operate with discipline to fuel growth.
So taking all this into account, this translates into a number of financial goals that we expect to deliver. From a high level standpoint, over the next 5 years, we expect to deliver an additional $1,000,000,000 in sales, an additional $300,000,000 in operating profit, and we expect to return over $2,500,000,000 of cash to our shareholders. Based on historical performance, if we or as we deliver this performance, this should translate into a top quartile TSR for the company, okay? So those are the big goals that we're going after for the next 5 years. Now ultimately, none of this is possible without the passion, the dedication and the excellent execution of our 23,000 colleagues around the world.
So I want to talk a little bit about our organization that is going to bring all this to life. And I've been in this business for about a year, and I have to tell you, I am always so impressed by the quality of the people that I engage with as I tour the world, whether that's in our stores, in our distribution centers, in our offices, we are very fortunate to have very talented, very experienced and very engaged individuals at Ralph Lauren. Ralph and I actually got a chance to go through the recent assessment from HEY corporate surveys as we look at our engagement scores relative to the industry, right? And so we don't want to just benchmark ourselves versus last year. We want to benchmark ourselves versus the industry, and we don't want to do better than the industry.
And this is a survey that was filled in by the vast majority of our employees around the world, and the results were actually quite strong. The level of engagement of the Ralph Lauren organization is ahead of the industry norm. So our level of engagement around the world, I view as a real competitive edge. And obviously, we'll continue to work on that. And over lunch, you'll have a special booth with Roseanne, our Chief People Officer, who can give you some more texture on what we're doing to continue to drive engagement and bring the best people and drive the right culture.
So let me touch on a few things. First of all, obviously, level of engagement starts with leadership, right? And we are very fortunate to have a talented, experienced and fully engaged executive leadership group. You can see their pictures here. They're actually all in the front row, and you'll have the opportunity to interact with them over lunch, if you want.
These are individuals that combine deep experience and successful experience at Ralph Lauren with deep and successful experiences at other blue chip companies, whether that's in retail, fashion or other industries, right? So just to quote a few of the companies, in addition to Ralph Lauren, where our leaders have experienced what leaders have experienced in Yves Saint Laurent, Jore, Coach, H and M, Adidas, Nike and even P&G. So a great leadership team. Yes, they even found someone from P&G, believe it or not. Great leadership teams and also a terrific Board.
We have a very strong Board, and I'm also very excited about the fact that we brought in 3 new members. So Ralph and I spent a lot of time interviewing candidates over the past few months because we wanted to bring in new different capabilities onto the Board. We've announced 2 until today, and then we announced one today. I want to wait for all of you to be here to do that. So Mike George, who is the CEO of Qurate, some of you may well, you probably all know what Qurate is, but if you don't, Qurate is now the combination of HSN, QVC, Zoomily and others.
Mike started 3 weeks ago in our last board meeting. Angela Ahrends will start with us in August. I don't think Angela needs a lot of introductions, but Angela currently leading retail at Apple and prior to that, CEO of Burberry, and Burberry was an amazing success story when she was leading that company. So we're excited to benefit from her experience both at Burberry and now at Apple. And then we're announcing today that Linda Kozlowski will also join us, same time as Angela, in August.
Linda is the Chief Operating Officer of Etsy. Linda has amazing experiences internationally and across the digital landscape. Linda actually worked for Alibaba, she worked for Alibaba for 3 years. So it was one of the things that got Ralph and I excited about that experience because China, digital, leadership, that kind of ticks all these boxes. So we're really pleased to have these 3 talented individuals join us.
They're bringing new capabilities. They're bringing new perspective, new experience to our Board and I think wonderful additions. And if you think of the companies that they come from, Apple, Qurate, Etsy, these are companies that are at the frontier of retail innovation, right? And so they're really going to help us kind of get our finger on the pulse across all of these channels and leverage from the experiences of all these highly successful companies. So engaged organization, strong leadership team, strong board with new recent additions, but ultimately it's really all about culture, right?
And I'm a big believer in this quote that culture eats strategy for breakfast, lunch or dinner, pick your meal. We want to drive a culture of performance, innovation, leadership and passion. That's what's built this company. That's what's gotten us to where we are now. We're going to continue to drive that.
There are a few elements here that I'm going to touch on, but again, Roseanne cannot wait to spend time with all of you at lunchtime, giving you some more texture on this. So we placed a very high bar on talent, right? We want to hire the best for the various jobs that we're staffing. And then we really want to make sure we're enabling people to develop to their full potential. Our people are a major competitive advantage for this company.
2nd is, we are clear as we enter new spaces, as the world evolves that we've got to have the right capabilities to win. And so our philosophy on capabilities is build, borrow, buy, right? We're not going to pretend we can do everything in house, nor are we going to accept everything needs to be outsourced. It's getting the right balance, build, in house, borrow, rent or buy, bring it in, to make sure that in every area that we pick, we are in a position to win. This is particularly relevant in our geographical space, and is particularly relevant in the new categories that we want to go after.
3rd space I want to call out here is diversity. So we didn't put diversity on this slide because you got to put diversity on a slide at an Investor Day. We put diversity on the slide because we really believe in the power of diversity. And what's actually quite exciting about this company is the breadth of talent, the diverse backgrounds of talent. There's some numbers on the slides where you get to see.
This is real. This is not theoretical. This is not a hope or a dream. This is real. And it's a competitive advantage.
We're very clear that diverse teams deliver better results than homogeneous teams. And we're bringing that to life consistently across the board. And then the final one is that we've called out 5, they're now doing coined the CFAs, cultural focus areas, to drive in the company, which we view as the behaviors of winning, and we want everyone starting with us as leaders to role model these behaviors. I won't touch on every single one, but just to give you a couple of examples, we're big believers in talking straight, no bullshit, as they say in France, all right? Talking straight, we have no time for indirect conversation.
We got to attack the issues, attack the opportunities, talk straight. The younger employees in our organizations expect this. So that's a cultural element we're driving. Move with urgency is another cultural element that we're driving because the consumer expects it, because the market requires it, and we know we have to accelerate. So these are just some ideas of some elements of the organizational focus that we have.
But it's very clear for us that creating the right culture, the right environment for our teams is critical because at the end of the day, they're the ones that deliver. I wanted to close on this picture. There's a strange guy in the middle, but aside from that, I think it's fitting to close with a picture of some of our team members because you can get a sense here of the passion this organization has. So this specific picture was taken last fall during our Pink Pony Walk in Central Park, which we do every year and we do around the world, part of our philanthropic efforts to fight cancer. And you can tell these guys have passion, right?
And the passion that they bring to our philanthropic efforts, they bring to our business as well. And that's why Ralph and I have so much confidence in our organization because we have people who are engaged, we have people who care, and we have people who have amazing passion. And this brand has been built on passion. Interestingly, Diane von Furstenberg, when she gave her off the award on Monday, the award is officially called the member salute, but she actually called it the love award. And I think that actually defines very well what Ralph is bringing to the culture of this company and how we operate as individuals.
People don't just come here for a job, they come here because they're passionate about the brand, they're passionate about the company, they're passionate about writing history, and they're passionate about our consumers. So there's nothing more energizing than that. So with that, you're now going to hear from several of our leaders who will give you more flavor on these various strategic choices. Jonathan is actually up next. But actually before that, I think we all need a little break.
So why don't we take a quick break? And Eren, do you want to give us
the logistics?
Yes, 10:42.
I've been instructed to do this. It's 10:42. We're going to start at 10:52, right?
All right. Very precise. Thank you.
It's working? Okay, great. Everyone, we're going to get started. If you can take your seats. Thank you.
And we give each other a big hug, kiss on the back. All right. I hope you enjoyed the break and the cold Ralph coffee. If you haven't, it's right around the corner when you exit. So now we're going to talk about bringing in kind of more perspective and examples on the five strategies that I laid out.
And I'm actually really excited to introduce our new Chief Marketing Officer, although Jonathan, you're not that new anymore, right? You've been here about a year now. Jonathan comes from Vice, he comes from the media world. He looks a lot cooler than me. And he's going to actually take you through how we're thinking about connecting with the next generation and share some exciting examples with you.
So Jonathan, come on up.
All right. Good morning, everyone. Everyone okay? Good. I see a few kind of I'm hoping that's not people that have left.
It's just a long bathroom break or something. What I want to talk to you about today really is every marketer's greatest challenge, how you connect with the consumer in a world where they control, where they control the access to all of the media that they consume. And this is a topic that Patrice and I talk about at length. And I guess my job today is to talk to you about how we're doing that, how we're closing that gap and how we're connecting with the consumer in the modern media age. So I'm going to talk about 5 themes today: humanity, the filter bubble, and I'll explain what that means storytelling, precision and perhaps most importantly and a theme that Patrice has already talked about, culture.
Why am I up here talking about humanity today? Well, as Patrice said, I come from the media world. I come from the digital world. And one of the fundamental truths of that world is that if you want to attract, if you want to bring people onto your platform or into your brand, it's essential to understand your audience and engage with them on their terms. You win through your ability to connect on a human level.
And so now at Ralph Lauren, we think about humanity. Now of course, we're very precise about the consumer segments that we target, but we think about them 1st and foremost as real people, people we feel we know, people whose lives we can imagine and we can understand. And we think about how we can influence their lives for the better. So let me just spend a moment talking about those targets and how we think about them. As Patrice has said again, we're going to acquire a new generation of consumers.
So we're going to acquire professional millennial men around the world, but we don't think about them as millennials. We think about them as the guy with young kids who travels a lot for his job. So he's in the office, he's in hotels, he's in airports. He needs to look buttoned up. He needs to create an impression.
But he also wants to look relaxed and cool in the evening. He wants to look laid back and happy at the weekends. We want to target women. We want to recruit the generation of millennial women coming into the workforce. But we think about them as that woman who's just got her dream job, that first big promotion, that job she's been working towards.
Now she wants to look the part, right? She wants to look as if she fits in that big new role, but she doesn't want to lose her sense of identity. She still wants to look stylish, and she kind of wants to look cooler than everyone else in her workplace. And we want to recruit the millennial creative class. Now of course, we don't think about them as a class.
We think about them as the young guy, the young woman who doesn't ever really need to dress up but wants to look well dressed, wants to stand out, wants to convey that sense of identity. So these are men and women in their 20s 30s that live around the world. They live in the major cities around the world. They're highly engaged in fashion and they're passionate about living a rich and a full life. Now we know them.
And as Patrice has said, we think the values of our brand, what we stand for, appeal really strongly to this generation just as they do to other generations. But it's not really to do with what we stand for, who we are alone. The big opportunity for us is how we engage this group, how we reach out and how we connect with them because we're going to have to do it on their terms and not on ours. Now you'll all know this, so I'm kind of preaching to the choir here, I think, but this is a generation that's super connected. They're super engaged in a world that they actively curate every day.
Imagine this is a mobile phone. They sit here like this for a reason. They're interested in the world around them, and this gives them that connectivity. And that's not just this audience. That's all of us, right?
All of us sitting in this room today, how many of you have felt your cellphone buzz in your hand or in your pocket, and you just can't resist getting it out? You're interested in what might be going on. What story has just come up? And that's because we, all of us, humanity, we've changed the way that we live. We think differently about the world around us.
We love the stories that surround us, whatever they might be, whatever interests us. We love the connectivity that this gives us, and we love the content that comes to life on various digital screens. And this audience, this generation that we want to go after, they're no different, but they've grown up in a different way. And right now, they live in kind of a different world to the one that we inhabit. I'm not making assumptions on the way that you live, but they've just come up in a different way.
So they browse culture in the same way that the previous generation would have browsed the magazine or would have browsed the store. They're handpicking the stories, the people, the entertainment, even the brands that they want to engage with, and they're actively filtering what they consume. Now if you're a brand, indeed if you're anyone, if you're a political party, whoever you might be, this presents a real challenge because this audience, more than any other, Gen Z, Millennial, they live in a kind of bubble, what we call the filter bubble. And the challenge here is, if you're a brand, you're either in that world or you're out because they can filter what gets in. They're going to decide that and not us.
So how you reach this audience, how you get into their world, how you master the media that they are in charge of, that's the challenge that we face. So I want to talk today and really the reason I'm up here is to talk about how we are mastering that challenge and what we're doing. So just to echo some of the things that Patrice talked about earlier, we have 3 core pillars to our story and what we're doing. The first is storytelling, really elevating the stories that this wonderful brand has got to say, really changing and elevating the experiences that we put around our consumers. The second is precision.
We've talked about an increased marketing spend, but really the point here is what we do with it, being more precise, being more targeted, going after specific people who we really understand. And the 3rd area is culture, how we get into someone's world, how we weave our brands into culture, unleashing the power of culture and unleashing the power of influencers. So let me start with storytelling. I think hopefully it's clear now that we think of ourselves as more than a fashion brand. We think of ourselves as a lifestyle brand, really a lifestyle that for 50 years has told stories that have inspired and that have wanted people, made people want to be part of our world.
And indeed, Ralph talks often about his process, his creative process as being a little bit like that of making a movie. Now here's the brilliant thing about thinking like that and about creating a brand like that. That has never been more relevant. On the one hand, we have an audience that is craving content, craving the stories that surround them. And on the other, we have this wonderful brand that has spent 50 years creating that kind of content.
So in many ways, this was a brand that was made for the culture that we live in, that was made for the digital age, a timeless brand, authentic, optimistic, incredibly well regarded almost every market that you go to, but creating rich, wonderful stories that people want to be part of. And now with all the advantages of digital media at our disposal, we are retelling those stories and we're telling new stories to excite a new generation across our media platforms and across our sales channels using video, using technology, working with new kinds of partners, creating different kinds of content. And this isn't a future plan. This is not the 5 year strategy. This is an approach that started already.
If you go on Instagram, you go on to WeChat, you will see this out there live now. And let me just bring some of that to life for you. So what are we doing? As Patrice has said, we sell across a number of different price points and in a lot of categories. So we're giving our luxury halo fresh energy.
We're elevating the experience that we put around our consumers, reimagining the fashion show and amplifying it in new ways. If you think back to September, the show that we put on in the garage, a new way of showing the collection, a new way of telling our story, an amazing experience if you were there, but equally an incredible media experience if you were accessing it digitally. We're elevating our most celebrated and our most sought after products. This is a video of someone making a Ricky bag, handmade, crafted in Italy. Now this is a product that's expensive by any measure, but this video or this kind of video brings it to life in a way that really captures its beauty, all of its unique qualities and gives it an aura of timeless desire I think everyone can relate to, but it's done in a way that makes you want to watch, that makes you want to be part of it.
And we're taking our heritage, 50 years of storytelling, reimagining it and taking it to new audiences in new ways. Ralph literally wrote the book on how to build a modern brand. We now have the opportunity to take that story and excite it in new ways. Let's think about our core products, the polo shirt, the sweater, the bear, as Patrice talked about. We are reenergizing the storytelling around those products, creating campaigns that are more youthful, more engaging and much more likely to cut through in a culture that's so full of different kinds of ideas.
And as Patrice mentioned, we're bringing all of this together in some of our limited edition capsules, taking highly desirable limited edition product that already has a relationship with certain audiences and combining those with highly targeted digital campaigns that go directly to that audience, making them feel as if they're special and creating that sense of immediacy, that sense of urgency, that desire to line up around the block, maybe even sleep out overnight, so you can be there at 10 am when the store opens and get yourself one of those hotly contested products. Now we can see this working. We can feel fresh energy around our brand. We can see the sentiment of the conversations that people are having about Ralph Lauren improving and getting much more positive. We can see new consumers coming onto our sales platforms, our sites, our stores, and we can see sales of the products that we're focusing on going up.
So we feel good. Now on to the second area. This is about precision. Now as I've said, we do want to invest more and we will invest more. But I think the point here is how we're going to invest it.
So just to unpack what Patrice was saying. Over the course of this 5 year plan, by 2023, we're going to increase marketing investment to up to 5% of net sales. That's adding more than $100,000,000 of marketing spend in that period. But we're going to be prioritizing within that spend the channels that will help this brand connect and cut through. You'll see print investment going down but not disappearing because it's still important for certain audiences, particularly in certain areas.
You'll see outdoor increasing as a great way for us to cut through. And continuing the trend of the past few years, you'll see our digital spend increasing. It's up 31% over the past 2 years, and it will continue to increase. But this isn't just a story about an increase in investment, as I've said. This is really a story about a change of approach.
And at the core of this, we're going to deliver more targeted messaging right the way along the path to purchase. And as Patrice mentioned, we've put the modern path to purchase right at the core of our approach, inspiring new consumers to come check us out and be part of our world, encouraging them to get on to our sales platforms and to understand if there are products that they really want to buy, nudging them to purchase and then starting to build a relationship with them, building advocacy, turning them into loyalists for this brand. And this feels, I guess, a little theoretical. Patrice has talked about it in theory as well. So I want to bring it to life now through the lens of our polo shirt campaign, which is out in the market right now.
So we started this campaign with exclusive events that happened around the world in key cities. So we selected key groups of influencers who had big networks of followers around the world. They had the opportunity to experience the world of this product, the world of this brand at its best. They then took that story and amplified broadcast it, if you like, to their network of followers. That's really how influence works in modern media.
You find the people who have an audience. You inspire them in some way. They help you tell your story on your behalf. Then we took the campaign to a broader audience. We took it to our social platforms.
We took it to YouTube. Think about your own life. These tend to be the places you go if you're seeking inspiration, to pursue the passions that you're most interested in to find the things that you want to buy. We sent highly targeted e mails to our existing consumer base. We want our existing consumers to grow with us.
We want them to think afresh about our most iconic products. So we were very specific about those consumers we wanted to target with this kind of message and encourage them to come in and check out the new stories. And as you'll see from here, advertising is not dead, but we are leveraging the channels that better cut through. We had a strong investment, and you will see this in key markets around the world, in outdoor focused on key cities, really elevating that story, a big impactful new fresh image for this shirt. And this is an approach that's very easy just to extend to our store windows.
As Patrice said, the store isn't dead. Many of our stores are in high traffic areas, a really bold way almost to put another form of poster in front of the consumers driving traffic into stores, bringing new people in and driving sales. Now of course, we want to lead in digital. So on raalphlauren.com, we really bring everything together. This is a way to bring the whole story together in one place, but also to focus on key details about the product, about choice, about the different ways that you can create your own shirts, to talk about the authenticity and the heritage of our product.
And it doesn't stop here. We think about the digital ecosystem. We know that certain consumers want to shop in different places and in different ways. So we work hard with our pure play partners like ASOS just to give a fresh expression that's right for their consumer on their platform. And we bring all of this together in every campaign through the lens of the consumer.
We inspire people to capture their own polo shirt styles using the hashtag polorlstyle, making the consumer a mini influencer, turning them into brand advocates. So if we talk about getting into those filter bubbles, getting out there and connecting in new ways, being more precise, being more targeted, we feel really good about the campaigns that we are doing. This is the start, and we're going to keep developing and going further. But there's a lot that's out there already that makes us feel good and encourages us about the response that we get from consumers. Now that was a working example.
It's live in many markets. But the principles of this are really the foundation of what we'll be doing going forward, leveraging the channels that matter most to the consumer, focusing on the media that's most likely to connect and to cut through. So you'll see a lot more of our campaigns working through the lens of influencers on social channels, through targeted video campaigns, much more cut through advertising, enriching the site content and the experience on our site and partner sites and through in store storytelling. And all the while, and this is critical, making sure that we're really focused on the commercial impact that our investments are making. And this is so critical, we're going to spend $100,000,000 incremental dollars.
We want to be really focused on the impact that every single one is making and driving a return on investment for our business. So we're already working with new kinds of data partners, new kinds of analytics partners every step along that path to purchase. And now on to the final theme, on to culture. We're dealing with 1st among equals here, but this is perhaps the most important of the themes that we're talking about, unlocking the power of culture in service of this great brand. Now we're very, very lucky.
This is something that I think standing here we've all inherited from the work that everyone who's gone before us has done because this is a brand that has a huge and rich resource of natural cultural assets. As Patrice said, we don't have to invent this stuff. It's there. Cars, houses, home, restaurants, coffee, the ranch, the West. The Ralph Lauren lifestyle is a really rich source of content, and we are going to continue to maximize that, just continuing to do it in new fresh ways that will engage the consumer.
But as a complement to those natural resources, we have fantastic partnerships with some great organizations in the world of sport with the U. S. Olympic Committee, with Wimbledon, with the U. S. Open and as Patrice said, in the world of golf, with the current number one player in the world, Justin Thomas.
Now these are really fantastic ways to bring our story to life in ways that consumers are already passionate about. And I hope you will have seen the great success that we've been having recently amplifying these partnerships, creating new stories through social content, through modern PR and by developing highly desirable products that really appeal to the younger and the more engaged consumer. And David's innovation team has really been at the forefront of that push and when he gets up to talk, he's going to talk a lot more about that and you should expect to see a lot more of this as we go forward. Very exciting partnerships in the world of sports. But I want to end on an area where we have made progress, but we probably still need to keep making progress, and that is in the world of influencers.
So we have a plan in place, and it's working well. It's not exactly what our competitors do, and we don't want to follow. We want to build a program in this area that plays to the strengths of our brand. So we're building a program that plays to the natural diversity, the different stories that we have to tell within our brand, but more importantly that will appeal to the diverse range of consumers that we need to appeal to around the world, people with different passions, different values, living in different markets. So let me talk about the fundamentals of that approach.
Now the world of Ralph Lauren has always been populated by a range of, I guess, you'd call them archetypes, the characters who have populated our stories, the artist, the star, the rebel, the aristocrat, the athlete, the graduate. What we want to do is leverage that approach and update it in a very modern way. And again, this isn't next year's strategy. This is out there in the market now. If you go to Instagram, you will see this in action.
So we're creating a new generation of characters, a new family of brand ambassadors that will help us tell our story in a modern way. So you think about GEM in China, and Howard will talk about that more in his presentation. You think about Chance the Rapper on Saturday Night Live wearing Stadium wearing Snow Beach Jessica Chastain for fragrance Akira for Purple Label you think about Lily Aldridge, who's the new face of our Lauren brand Tony Romo, who's going to be the new face of our Chaps brand you think about Justin Thomas, who I've mentioned Luke Rockhold, the face of Polo Blue. Now this is a strategy that's out there in the market. It's driving results, and we feel good about it.
But it's in its infancy, and we look around the world to start to see where it's really building traction. And if we look to China, where the team there, led by Cecilia, have done such a fantastic job pioneering this approach, working with the best celebrities in that market, this is really the heart of our marketing activity in that approach, driving massive awareness, really cutting through, elevating the quality of our story and our products, and when we focus specific products, driving sell through and sell out. So this approach works and we feel good. So those are our marketing efforts, and I just want to summarize on where we are. We feel really good about what we're doing.
It's not about what we're going to do. It's what we are doing. We understand there's progress to make, but we feel good about where we are. We know that we have an audience on one side that craves content, that is really engaged in the stories that swirl around them. And of course, we have a brand that's made to match that, rich in stories, rich in content.
So we're going to invest more money. We're going to do it in a much more targeted way. We're going to be clearer about the impact of those investments, and we are unleashing the power of culture and the power of influences on behalf of this brand. We believe we can get this new generation of consumers. There's nothing that's going to stop us doing it.
We want to turn them into the future of this brand, but that's in combination with all of the things that we're doing to deal and grow with the 50,000,000 consumers that we already have. So that's broadly it from the marketing story. I want to turn now on to the next great chapter that we want to talk about. And if marketing is really about understanding the consumer, reaching out and connecting, If I'm being honest, there's almost nothing to get them excited about unless we have great products. And so in just a moment, I'd like to hand over to Valerie, Valerie Herman, who is President of Brands for our company.
And Valerie is really my partner in taking our design vision out into the world, connecting with audiences and making them excited. As Patrice said, she has deep experience in luxury brands around the world, and she does an amazing job with our design teams and our brand teams across our portfolio of brands. So she's now going to come and bring the next great chapter to life for you all.
Thank you, Rory. Good morning, everyone. I'm very happy to be with you to talk about product strategy. You heard Raj talk about dream, fashion, quality, vision. You heard Patrice talk about growth.
You heard Jonathan talk about the consumer. And you probably are thinking, yes, but how are they going to do that with product? Because the dream begins with products and how we can have more millennials, more women in our consumer and are we going to deliver what we promise. Yes, we are going to deliver what we promise. And I want to quickly come to what we have done last 2 years because we promised to deliver 3 key pillars for the products.
The first was to reinforce the strength of our iconic and core products. The product we have the best app with best quality, supreme quality, and we did it. We definitively reinforced our iconic products. 60% of our revenue is represented by iconic and core products. And on top of that, we improved the gross profit rate of 400 basis points.
Check. 2, we say we will improve the discipline assortment. Guess what? We did it. 30% less style, less SKU, increased productivity by SKU, revenue to 16%, gross profit to 22%.
So check it on. 3rd point, we say that we will increase excitement, bring new and f, increase everything we can do in innovation, drop some limited SEI. You heard about limited SEI and you will see in a minute. All the limited Serie and the drop and the stadium, Snow Beach, we just dropped the CP 93, which is I cannot give numbers, but it's already a great success and it's only 1 week. We did it.
Personalization, I don't want to scale the presentation of David, but great, great work on personalization. I mean, great traction in store where we put it, so we did it. So we promise, we deliver. So what's next? It's great we promise and we deliver, but what's next?
So next part is really to push the growth on product. 2 pillars, as Patrice explained to you, 50% of the growth will come for the work that we do on core products, iconic product. Why stopping what works? It's already working. We will do more.
We'll be even better. The second part of the growth will come from the underdeveloped category, how we can increase the underdeveloped category. And we have selected 5 category, and I will explain to you how we selected the category and how we will grow this category. For the 2 pillars, the things which is very important, we will on top of that tailor the assortment by region and by channel. So differentiation by region, by channel is key.
I heard many questions about that how you can sell a mesh hook here, mesh hook there by channel and by region? We can do it with a disciplined assortment, and I will show you how. So first, the 50% of growth, which is coming from the core assortment. We are already doing it. We will not stop it.
We will carry on constantly to have the best shirts, the best oxfords, the best pants. We will have innovation in it. We will bring freshness. We will bring new colors, newness. We have a very strong creative vision.
So we'll use that to keep where we are the best, but still grow market share. We can grow share on that. So 50% of that of the revenue growth will come from that. Drive excitement, more to come. I will tease you, we have a partnership who will be announced in Q3.
I'm absolutely not saying who it is, so like that I can tease you and you can wait and see, but it will be very exciting. So more to come on limited salary partnership will excite the consumer with what we are doing on the pro assortment. I'm not going more on that because I think Patrice is quite very well what we are doing in term of products, taking the military jacket, taking the mesh shirts. So we keep doing that. 2nd part of the growth, the 5 underdeveloped category.
So we are already in this category, but we selected them because what the consumer is first in the center telling us is that we should play in this category. So he's saying not only you should play in the category, it's part of your DNA. I want to buy from you and I want to buy more from you. In addition, these categories are all big business. They are margin rich, big business, and we are in some extent underpenetrated.
So we have great opportunity to take them, and believe me, we will take them. So we have denim, wear to wear, outwear, shoes and accessory. And I will show you how we are working on it and what are the first results on 2 categories, which are denim and outwear. So how are we approach a category? You see the consumer always in center.
So how are we going to attract women millennials? Yes, with a creative vision, we always think of the consumer. Ralph used to say we are the consumer, yes, but we are as well listening to the consumer. We have insight of the region. We have insight of the channels.
We have we know what the consumer is telling us, but we have a creative vision in addition. With always elevating the brand, improving the product and definitively working with our partner in crime in marketing and region to make sure that it's not only a product on the shelf, but you go to the consumer and you have the right distribution for the product. The good news is we have the team and the expertise. We have a strong creative vision. We have strong studios.
We have strong development. We have strong marketer, and we have the right distribution to do it. So trust me, we will do it. So I will show you first denim. So denim, you will recognize a young guy in denim.
He's always wearing Dunham every day. I don't know what you did today, Ralfs. Frankly, I was dreaming he will wear Dunham. I didn't call him. He's wearing a fantastic purple made to measure suit.
Normally you have Dunham. So he's even having the mean that at least you have the photo of the CFDA where he was wearing Tuxedo with Dunim. We were the first to have Dunim in our life every day. Dunim is a big market. It could be €500,000,000 of target for us.
It's €105,000,000,000 market. So €105,000,000,000 market. So good news, we can take it. It's a CAGR of 4%. The good news, even better news, our competition is penetrated at 10% in general.
We're at 2%. 2% of Rafloren, 10% of competition. So let's dream at what the growth we can take in that. In addition, the millennials is telling us in survey, I want the name from you guys. It's part of the top of mind when I'm thinking of denim, I'm thinking of Ralph Lauren.
So we will take it. And how we will take it? In a very disciplined way. So first, the product, creativity, the best fit, the best washes, the best embellishments, the best details. We have a team inside which is completely dedicated to denim.
We have a world of denim who is working on that. We have people who are like constantly looking for new washes, new stretch, double stretch, triple stretch, how we can do and put innovation in that. So products wise, 1st. Then, of course, the marketing activation. So how to have a great product but not touch the consumer?
You have to have the right asset. You have to be focused on how you talk to them. You have to have the right training in store because I mean you all have experience in as well. I mean, you have a cap rate, you have a long wide leg, you have we need to train the team to make sure that what we have, we say that to the consumer. Of course, the digital activation because if we talk about millennials, I don't know about you, but I have 3 millennials at home and they have 2 hands, One hand with it like that and the other hand with it like that.
And when they have time, they are talking to me. So they are all needing to have that digital activation that say about the products. And of course, endorsement. I mean, we are talking a lot about endorsement. It's interesting because the two photos you have here, you have on one side the Olympic team, the U.
S. Olympic team, who has a fantastic technical dunning on them, and you have Chance the Wrapper. So we can really touch all the different customer on dunning. Distribution, we have the possibility to have in our own store. We can be as well double represented.
You can go to the department store and be represented with Polo, we can be represented as well on the floor of Dunim. So it's a great possibility of distribution. And in a provocative way, I mean, have, of course, a digital part, which should be our 1st store. The 1st store of denim should be our website. I want to come back quickly on the distribution on denim in our own store.
I heard that some of you are sometimes asking about, you had denim and supply. So why did you kill demand supply and you go to Polo? And great news for you. The consumer wants a clear and consistent message about what we are saying. And with Asia, we transformed 17 store of the 19 store demand supply, and we are already trending at plus 70% versus last year.
So it's working. When you do that in, in the right way, with the right consumer in mind, with the right creativity, with the right quality and with the right go to market, plus 17% versus last year. We are winning. So I know you like numbers. So normally, I'm talking about products.
I'm just going colors, stretch, fabric. But for once, I will give you a number. So here is the evolution of denim. Plus 16% over the last quarter on a year of plus 13% versus last year in denim, but gross profit was 28%. So we are already winning in applying the assortment, the discipline, the creativity, the go to market.
We are already proven concept that is work. I could show that to different category. I decided to show wear to work, which is a sewing category. You remember I had denim, wear to work, outwear, shoes, accessory. Wear to work.
I, on purpose, put women on the pictures because, in fact, I could say wear to work for men. I could say wear to work for women and even kids because back to school is our way of being wear to work. But I expect to put women because remember, we want to win the millennial and we want to win women. So the consumer in the center is telling us, oh, I love your brand. It's casual.
It's cool. It's sportswear. That I should be dressed all the week. By the way, I want to dress her, him for 7 days in a week, not only 2 days, but 7 days. You should be all dressed in Ralph Lauren.
You should be all dressed in Polo. So I invite you to the showroom, to the store, you should come with me. I will all dress you. So where to work, we have the ability to really take the market share in that domain. Same thing, the market is big.
It's bigger than denim. It's $292,000,000,000 with a bigger place on women. Of course, she's spending always sometimes more. Sorry, great. We can take it.
And the consumer is saying that you can play in the category. We know how to play in the category of jacket, suits, pants, dresses, sweater. We can play in that. We have that in
our hands.
So €292,000,000 imagine if I'm taking a big part of that in addition in men and women, even kids, it would be great. It's again €500,000,000 of possibility. With a CAGR of double digit until 2020. So we are under penetrated. We know that.
And I will give you an example of what just happened in full under the leadership of Ralf and the team. We had a full assortment in Polo who was more casual. It's funny because this morning we're saying where to work is great. We are coming like that at Brafloran every day to where to work. So you should join us.
It's a fantastic company for that. You can come and where to work like that. But we have as well women who are asking for a more formal wear to work. It's very strong in Asia. They're strong in Japan.
So the same collection, I can take that. I can take her from 2 days to 7 days. So if I'm doing that, you imagine the potential we have in the market. So denim, huge potential. We're underpenetrated 2% to 8%.
Where to work? I can go from 2 days to 7 days. I have the ability. I can even tell you that I could do where to work in dunning. So we are so strong in all the possibility we can give in products that we can do it.
So I show you dunning, I show you where to work. If I have the day with you, I will show you outwear, I will show you accessories, I will show you bags, and I will even bring you insurance and in store, and we can bring them in store, Ralph and Patrice. We can shop just after. But we can do that for all the products. In addition of that, when I'm reading your question, many of you are asking that how you can do that in different regions?
How you can do that having retail, wholesale, factory? What's the integrity of price? First things, on any products we are doing, whatever is for factory, whatever is online, whatever is in one country, another, first quality. We are very proud of the products we are doing. I'm showing you an example on the polar bear because as you know polar bear is we love the polar bear.
And every time we're having a product with the Polar Bear, it's a huge success. It's a high sell through, very rich margin, and it works very well. You have in my back example of what we did for North America with different price points, different products by channel. The good news is all of this SKU were extremely productive, worked very well, high sell through with an integrity of quality and price positioning. So we can do that.
Then you're I'm hearing you saying that, yes, but what about your discipline of assortment, Number of SKU, the number of style, it's more about the productivity of the style. It's more about the productivity of SKU. So you can have more SKU if you are productive. I can tell you that all this SKU was extremely productive, and we sold them very well. So if we did 3 things, which is focus on the core and be strong on the 50% of the growth on the core, so when we're already doing great, Adding this underdeveloped category with a tailoring by country, by channels, we will win.
We will win the consumer. We will win the millennials. We will win the women, and we will win home. We will win more and more. Consumer will love Raiflurel.
Of course, with a partner in cream that I have in region and marketing, I mean, we need to go to the consumer, and we need to talk to them. So I'm sure sometimes they're saying, it's great. She's telling us that we need to see the numbers. So sometimes it's good to let the consumer talk about the brand. And I will show you in a minute some consumer because I want you to believe that what we promise in products will deliver and the products will win the consumer.
So I will show you a quick video on our beloved customer. You know what, it's terrible because you don't see I have all the team which is dancing on the back. So it's like your team for having the couriers. I mean, I'm sorry, not today with Investor Day, but thank you for at least animating the room on the back. So trust the customer.
Trust us. We win them. They are in the center of what we are doing. We have a strong creative vision, and we want to reach them in the right product and with the right way of reaching to them. One thing I was telling you about products is we talk a lot about individuality, personalization, and I didn't really talk too much about it because I would have the great pleasure to welcome on the stage the most creative mind we have in the company for innovation, David Laurent, will like to talk about innovation much better than me.
So David, please come on the stage. He's now about the floor of innovation.
Hello. I'm so proud to be here today. Following Valerie and Jonathan, their energy and their passion and their love, what you saw up here today, I wish you could see that in our offices because it is infectious and it is exciting. And maybe at a future Investor Day, you can come and actually just sort of walk through our offices while we're at work, but it's crazy energy right now. The new leadership, the evolution of what we're trying to do, what you're seeing up here is very real and it's very exciting.
And you're just getting a little flavor about it. I am here to talk about innovation. And innovation is a buzzword that we're all talking about. You hear it fancied around in our industry and across the world. What does it mean at Ralph Lauren?
I think for a lot of people, when they hear Ralph Lauren, they think of old world sophistication, timeless style. That's great. But I think what you saw today with Ralph Lauren is an entrepreneur who started with a tie and has built a company built on that entrepreneurial spirit. We went from a tie into menswear, into womenswear, into home, into children's. We set the bar high and we kept evolving as a company, which reinvented the way people look at the fashion industry.
The concept of a lifestyle brand, the concept of lifestyles shopping, pioneering the concept of a store that is really a world and an environment and a theater started here at Ralph Lauren and it changed our industry. What you see in wholesale, shop in shops, lifestyle advertising and marketing, brands that tell stories, you've been hearing about it from Jonathan, from Patrice, from Ralph Lauren himself. We helped to define this company and we led and evolved for 50 years for the 1st luxury fashion brand to sell on the Internet, 1st luxury fashion brand to create a mobile enhanced website. Couldn't shop on a phone before Ralph Lauren in our industry. We brought QR codes to America.
We put shoppable technology in our stores before anybody was doing it, but you can walk up to a store and touch a screen and shop. Ralph Lauren has been leading the way and innovating for 50 years. So what do we do for the next 50 years? Where do we go? There's a lot of evolution.
There's a lot of innovation ahead of us.
I'm going
to talk about a few ideas today, but there is so much more coming. As Ralph Lauren himself says, you don't stay around for so many years if you have nothing new to say. But we're not just trying to create a cool idea or something to market. We're trying to seed new businesses. We're trying to create value and transformational growth.
We are planting the seeds for the future now. We're looking and focusing on products, retail and lifestyle. Technology may be a through line through all of this, but there are many through lines through all of this. Innovation is in our blood and ideas are endless, but being focused on making sure that every idea works with Patrice's mission statement and purpose is the key. So we're focused and disciplined to bring each idea to life.
This year, you heard about the Olympic jacket. On a global stage, the Olympics. Now I don't know how many brands have the opportunity to have a fashion show in front of billions of people around the world, but we've had that opportunity since 2,008, when we were in China in front of 100 heads of state. Every time the Olympics comes along, we try to reinvent our brand and think about new ways to talk to consumers, so they see us in a fresh way. But with the Olympics, we are in fact not just representing Ralph Lauren, we're representing America on a global stage.
And what did the Olympics want from Ralph Lauren? They wanted our team to look like ambassadors on a global stage. And they came to Ralph Lauren for that specific reason. And when we thought about the symbolism of the Olympics, we put on a really kind of cool outfit, old, old frontier gloves that play with the symbolism of America and the frontier movement. Denim, because that's part of the iconography of America.
Now where is the world going? Where is America going? Where is Ralph Lauren going? Well, why not wearables? Why not technology?
Why not create a jacket that heats up at the press of a button using the most cutting edge technology available in the world, carbon and silver ink inside of a jacket, and the touch of a button can heat up our athletes, make them feel warm and comfortable when it's 0 degrees and they're walking in front of the entire world and they need to keep their muscles limber and loose so they can win the next day. So we very proudly worked with the U. S. Olympic team to create something that we think is amazing. Here's a little touch of the excitement.
Team USA decked out in Ralph Lauren
with some new Olympic jackets on. I love it.
We knew that the athletes needed something that would keep them warm on the global stage in freezing environments. So we created a jacket for them that has heatable technology.
The parkas have a battery pack with a button that avid can push for instant more. Sign me up. We've got our Polo Ralph Lauren official Olympic opening ceremony gear on. When Team USA comes together, it's so special, and to be able to wear all these uniforms will be amazing.
Now what I was saying about this jacket is the seed of a new idea. We're just learning. The ultimate test is on an athlete, performance testing. Well, we put them in our stores and we sold them at a lot at big expensive cost, dollars 2,500 a jacket because they were limited edition, because they were really made for the athletes and because all the proceeds were going to help to support future athletes. Well, they sold out within an hour.
And they were on eBay and are still on eBay, if you check, for over $8,000 a jacket. So we saw the demand, we saw the excitement, we saw the crowds at the store, we saw the PR coverage, which was phenomenal. And we said, what do we do with this? So now we're going to be incorporating this technology into more of our close. We're looking at products that are coming out this fall and holiday and into the New Year that I think are going to really excite our customers and fulfill the demand that they are asking for.
We're working and listening to our customers and hearing what is the appropriate modern technology to apply to our company. And we're testing and we're learning and we're going to keep trying new things until we find the best way to bring technology and wearables to our customers. But along the way, they're going to think of Ralph Lauren as modern, future oriented and cutting edge. So where do you go with that? What's the future of wearables and thinking about how do you use technology to change the way our clothing is done?
Well, why not sustainability? Sustainability is not a buzzword at Ralph Lauren. It is who we are as a culture today. We are not leading in this area, but we are going to. Our goal with sustainability is to start to learn about the best ways to work with new kinds of fabrics, new kinds of products that make our world better and healthier.
And honestly, it's not just something we want to do, our customers are asking us for it. So we need to get in the game and we need to move quickly and you're going to see a lot happening this year alone. We're starting with this really cool upcycle close, which was already on the cover of the Wall Street Journal this year, and it's basically working with artisans and actually collectors who have been collecting great old Ralph Lauren, and we've upcycled. We've taken products and we've reformed it into products that are really cool, they're really interesting, and they're really fashionable, and they're new, and no one's seeing anything like this. And for Earth Day, we're going to be launching the Polo shirt.
As Patrice talked about, focusing on our icons, big businesses, the Polo shirt, think about a closed loop Polo, think about saving the environment, think about that shirt and what it could do when you wear it and what it could mean to a customer beyond just timeless elegant style. I think you're going to see we can keep evolving it in a 1000000 ways, and there's a lot of excitement coming this year.
Customization.
Our brand, Ralph Lauren, was the 1st luxury fashion brand to bring customization and apparel to the Internet. We led and we need to lead and continue to lead. We need to bring it to our stores. We need to use new technology. We need to find new ways to excite our customers around customization, and we're having a lot of success.
Now technologies is one part of it. We want to think about on demand shopping, direct to garment, direct from factory. Stores as factories. We're doing all of it as we speak. We're testing and we're learning all around the world.
And what you're seeing now is stores that go from Hong Kong to Prince Street here in New York are booming. Customers are walking in. They're loving the theater and the excitement. We did a shop out at the U. S.
Open with a line out the door every day. We tried it at Macy's. We tested it at wholesale. How do you make something that works online work in the store? And what kind of customer reaction are we getting?
It's kind of amazing at Prince Street, 70% of the customers that walked in and shopped for that product had never shopped at Ralph Lauren before. Isn't that incredible? We are attracting new customers. They're younger, they're fresher, they're really excited about the energy in the room. And you have to go to the store and play with it because our systems are really fun, they're interesting, and they combine what's beautiful and stylish about Ralph Lauren with you and what you want.
And customers are willing to pay full price because that's the only way you get it, and they're okay with the fact that once they put their name on it, I'm not going to buy it, so you can't return it unless their name is David. So it's working for us. And we're finding even online where we're introducing all kinds of new products, sweaters coming all kinds of new products for this holiday, which will be unveiled over the next few weeks months, sweaters, hats, shirts, scarves, it's endless, the new kinds of products we can create. But what we're finding is the customers want to engage, and the more emotionally connected they are to us, the more interested they are in the product, the more time they spend on our website and in our stores, the more we are connecting. And that's our goal ultimately, and it is working for us.
As I said, I've said in the past, close to over 25% of the Polo shirts we're now selling online are CYO, think about that. And so this new community is starting. Crowds are coming in, they're working together, they're bringing their families, but what is community today? What is community? We hear the concept of it.
Well, at Ralph Lauren, it's kind of amazing. There are fans of Ralph Lauren everywhere. There are collectors for Ralph Lauren everywhere. There are stores in Japan dedicated to collectors who collect Ralph Lauren products. Can you believe it?
Entire stores, there are people who buy and trade and sell Ralph Lauren. There are conventions where people get together to share their Ralph Lauren product in the thousands of people. So who are these people and why are they connecting? And who are they and how are they connecting to each other? And how do we galvanize and inspire them and connect to them because there's millions of them.
There's a guy who just put on online his collection of Ralph Lauren, a $1,000,000 collection of Ralph Lauren products. You probably read about it. So who are they and what does this mean? So there are books that they're writing about Ralph Lauren. There are documentaries that have come out.
And if you follow the Instagram handles of some of these people that follow Ralph Lauren and are just dedicated to Ralph Lauren, they've even named themselves Polo 67 and there are so many handles, they add up to the millions. So this year, we're going to speak to them in a cool new way and we're going to create an app focused on our Polo brands, focused on this community where you will meet the collectors. You will get a chance to see their collections, and you will be saying, Oh my God, who's this cool woman in Spain? Who's this cool guy in Japan? Who's this there's a whole community.
And we're going to offer them an opportunity to connect with our brand in a way that they never have, not just using modern technology, but using the passion and love that already exists for this brand. But they want to come inside the world of Ralph Lauren. They want to meet the design teams. They want to help give us feedback on the products that they want to see, and we're going to learn from them. And the closer we get to our customer, the more effective, the more efficient, the smarter we're going to be at fulfilling their needs.
So our job here is to inspire and excite our customers, but we need their energy. And you're seeing brands doing this successfully. We've gone and met with the folks at Disney, Mattel, Nike, all the brands that are doing cool apps, creating community awareness. Look at Mattel, they're amazing. And no one is doing it the way Ralph Lauren can do this in our industry.
So I'm excited about innovation at Ralph Lauren. I've only touched on 3 concepts here today. There are so many more that are going to come and going to blow your minds. It's really cool. And we have this history that we need to build on.
We've set the conditions for innovation. We're working very closely with Patrice and the senior team that you've seen here. There is enthusiasm and their excitement to do this. We are tied into the ecosystem. We're out there meeting the cool hip young brands,
the
cool new innovation companies,
the
tech companies from around the world that want to work with Ralph Lauren, not only to put their technology on the map, but because they think they can help fulfill our storytelling and help us connect with our customers in new ways. And we're making these relationships, we're building on these relationships in new ways, and we are leading. We are beginning to find great success and we're going to keep having success. And this year is going to be a tremendous year. And I mean this from my heart, this company is changing and evolving every single day.
The energy you may be feeling in this room is the tip of the iceberg. This is a company of young ideas and it's kind of feeling like it needs this like we have everything. We just need to step forward, keep trying new things and keep experimenting and to keep innovating, and it's happening and we're thrilled. So I thank you for your time. I would like to tell you that I'm the last speaker before you have to go to lunch.
So we have lunch. It's not that innovative, but it's tasty. So thank
you very much.
Okay. All right. It's working. Great. Thank you for that.
That was great presentations all morning. So we have break for lunch. And once again, lunch is in the room where you had breakfast. And at the same time, do remember, if you look on this side of the room, the sourcing and supply chain area is right there. Right over here is people in development.
You can learn more from our leaders, meet them. And then on this side, we have both North American international distribution as well as right in the middle, lead with digital. You're going to see Alice and Janice Sherlock over there. And we're going to start right at 12:45, so about 45 minutes for lunch. Thank you.
Now. Exactly. Enjoy it. So long. And then
you put the jokes in there.
Okay. Exactly. It's working. Okay. Great, everybody.
We're going to get started. You can take your seats. No, it's hard to it's going to be hard to pull everybody away from the booth.
All
right. This Jess is up next. Looking for Jeff Kuster. Okay. Great, Jeff.
Okay. Clicker is right there. Okay. All right, everybody. We're getting started with the afternoon session.
You can all take your seats. Thank you.
I hope you enjoyed the lunch. I hope you had a chance within the relatively short time to walk the booths a little bit, get more insights on different aspects of our business that we didn't necessarily touch on during the presentation today. So this morning was really about framing our strategic choices, right? And then we went into more detail on the first three, went over a new generation, drive energize our core product and accelerate underpenetrated categories. And we also talked about innovation and how we're bringing innovation to life across our program with David.
This afternoon, we're actually going to start with a bit of a world tour, starting in North America with Jeff and then Howard will cover the international part of our business. And as I mentioned, Jane will bring it all together, including more specifics on the metrics that we intend to go after. And then we'll open it up for your questions. So at this point, we're actually going to kick off the world tour with Jeff. So as I mentioned to you this morning, Jeff has intense and broad retail and fashion apparel expertise.
Jeff is a transformer from his previous role and with his team and several of his team members are actually here today, is driving a transformation of how we go to market in North America, how we interact with consumers in North America. And North American environment is challenging, but I'm actually feeling very good about the progress we're making. You'll see that we have very clear game plan to get North America, our home market back to growth. So Jeff, welcome and over to you.
Thank you, Patrice. Good afternoon. I got the coveted after lunch spot. So I'll try to keep it punchy and keep you guys focused while you digest. How about that?
So and I think I covered most of my material over in the booth. So anyone who wasn't there, hopefully you'll find this engaging. But look, there's if I could ask you to leave my presentation today with 3 things. It's the follow. If you remember nothing else, it's 3 things.
It's first of all, that North America is an emerging success story. 2nd, that we have a clear path to grow. And the third is not a hypothetical, we're already in action. So those are fairly bold claims coming from North America. So I'd like to take the next 20 minutes to show you what we've achieved so far and where the opportunity still lies.
Next, to walk you through what we're doing to capture the growth and then bring it to show you how we're bringing it to life with one example in particular in Los Angeles. Sound good? All right, we're digesting. Here we go. So let's start by taking stock of where the business is today in North America.
So we're a significant part of the corporation's revenue. You might be surprised to know we're about a fifty-fifty split between wholesale and retail. We're also quite profitable. We have a very, very strong market presence. We're very broadly distributed.
We're in almost every kind of distribution you can get in the region, starting with our full price stores, obviously, a large distribution within wholesale, a great flagship website that's coming back on and then a vibrant factory store network. There's a very valuable consumer franchise, highly, highly penetrated with Gen Xers, as Patrice and Jonathan talked about earlier. We also have a significant opportunity with lapsed Gen Xers, and we get our fair share of millennial men. We have an opportunity with millennial women and we think that well, with both men and women in the millennial space, but we're happy with the men's millennial share. And we obviously have a leading position in some very key categories.
But when I joined the company 2 years ago, we took stock, we took a hard look at where we were and we realized a few things. We found that we were the brand was overstretched. We were in some distribution that wasn't the right elevated place for the brand. We weren't acting like a region. We actually had 4 business units in North America that were at worst kind of competing with each other and led to things like 4 different inventories for 1 region.
And I think most importantly, we had lost our way with the consumer. We lost track of how they wanted to engage and how they wanted to shop. We know that customers don't shop by channel. We're organized by channel, but they want to consume the way they do. Patrice showed the journey and that's what and we had to align to that.
So given that sober assessment of where we were, we realized that we had to take a deliberate plan of shrink to grow. Now you might be reassured that it's not a natural act to cut your revenue. We don't feel that that's something we want to do all the time. But it's the only thing you can do when you've got to get the brand back to health. So we made a very strong plan and I'm happy to say 2 years in, we've largely delivered on that plan.
So what did we do? We did 4 things. First, we immediately elevated the brand through a wholesale cleanup. We cut our off price sales by 35%. That's a big number.
We closed 25% of our wholesale points of distribution, deliberately pulling back out of those sales. Next, we cut our reliance on promotional sales. We were actually buying into excess back in the day. We no longer do that, certainly. But we also took a really difficult decision to close 41 of our full price stores.
These were stores we opened with great care and affection, but the traffic and the performance were no longer sustainable. And we also cut deep markdown sales on our own website by over 40%. Then we focused on operational excellence. As Patrice mentioned, we cut our inventories by over 30%. We're working to unify those 4 distinct inventories, commingle and then make into unified inventory.
And importantly, we were able to improve our gross profit rates. So what does all that mean? That means that now if we grow, it's going to grow in the right way. And finally, we created a unified region. We built a team and started to focus on driving a coherent consumer experience across the ecosystem that Patrice talked about.
So this hard work, all those crazy things that we've done in the last 24 months has put us back in a position to grow. So remember I told you we were an emerging success story. This is where it happens. We have both a geographic and a category opportunity in this region. If we look at expansion for Assist geographically, we know we have 12 metropolitan statistical areas.
These are significant markets in North America. We don't have our fair share. These aren't small markets. We're talking about Los Angeles, Chicago, Washington D. C.
Metro. So we know just by getting back to our fair share, we have growth opportunity. We also know from what Valerie presented that there are these high value underdeveloped categories like denim, where we have opportunity again across all these geographies. So the point is, this big region, this big distribution, we have a lot of growth opportunity and we will return to growth. So it's a significant change in trajectory.
I'm going to pause so you can appreciate that chart. We're committing to being slightly positive starting in the next 5 years, while continuing a strategic pullback in off price sales. So deliberately again dampening the rate, so we can continue this pullback from off price, while improving gross margin and operating income at the same time. So this is a big deal and we're pretty excited about it. But you might ask how are we going to do that?
So the goal is to drive growth in North America by creating a coherent experience for the consumer across the ecosystem. And there are 4 initiatives, they're very focused and coordinated. The first is to reinvest in our existing stores to drive productivity, is doing more of what we have. Next, it's about partnering with high quality wholesale, working with the right partners to elevate the brand experience and drive share growth as well as productivity. And third is continuing our acceleration and shift into direct to consumer, both from a brick point of view in small format stores and also from a click point of view in digital commerce.
And then these 3 kind of mean nothing unless we pull it together without an integrated approach to market. Again, engaging that consumer and how they want to
shop with us. So let
me tell you more about each of these initiatives in turn. So first, we're committing to increase the productivity in our full price stores. And Patrice talked about this a little bit. We frankly have not given our stores the love they deserve. One example is Chicago, important market, great store on the 50 yard line of Michigan Avenue.
We haven't refreshed that store in 19 years. So as an example for us. So we have a store by store action plan focused on investing in both the infrastructure to renovate the stores and change the way we work to create both a better consumer and associate experience. So we're going to drive traffic through localized marketing and activation. We're driving conversion through more effective layouts, lighting and infrastructure removing friction and improving that experience.
And we're driving profitability through improved leverage and efficiency. So over the next 3 years, you'll see us refresh enough stores to cover about half of our revenues and dropping the average age of our fleet by a third. Next, we're committed to growing share in key categories and driving productivity with our high quality wholesale. So this is a good story for us. This is not a project.
This is something we've been proving over the last year and a half. We have refreshed over 80 of our top department store doors. At the same time of that pullback, we were also investing to refresh the right doors. These are things like improving fixturing, lighting and creating callouts for key growth categories, again, like denim or core things like mesh. So this has driven improved sales and margin and productivity versus control doors as well as pretest trends.
So the best proof of this being effective is the fact that our partners are co investing in these. So they're actually footing half the bill. So we're so excited by this that we're actually rolling we're continuing to roll it out and we'll continue these activities in fiscal 'nineteen and beyond. So over the next 3 years, we'll reach 40% of our doors, which represents about 60% of our traffic and cut the average age of our fixtures in half.
It is good coffee.
So the next is accelerating our focus to direct to consumer. So and this is all about opening up small format stores in these underpenetrated MSAs and increasing the productivity in our fleet of factory stores. This is the brick part first. So we think there's an opportunity with small format stores and Howard will speak more about this particularly in Asia. But these are smaller doors than we would have typically opened, about 2,000 square feet, easier to run and operate, more flexible, more productive.
And with really clear callouts and roles. So imagine you've heard of pop ups, so we're going to have a dedicated space in these stores for pop ins. So think of a regular cadence of marketing activation. There's also clear callouts for growth categories like denim or customization. And third, these are a platform for omni services as we build out our digital capabilities.
We're very excited about this. We're committing to open 12 of them in North America. We've opened the first one 3 weeks ago in Los Angeles, the Beverly Center Mall. Hope you all go visit. Then if we look at our factory store formats, it's a very similar approach.
We've invested to improve the shopping experience by elevating the brand experience and making a better consumer, removing friction for the consumer. The same kinds of things, lighting, layout, fixturing, navigation. We've seen a healthy increase in AUR as well as a healthy increase in average ticket and a great return on investment. So many of you who've been to our Harriman I was speaking to many of you at the break, who've been to our Harriman store at Woodbury Commons. That's a great example of this format.
We're rolling that out across the balance of the fleet and continuing to invest in the positive momentum that we get from that project. So we feel pretty good about our brick and mortar because they're tested concepts that we've proven and we have a return on. So let's talk about digital. Obviously, we're looking at the whole digital commerce ecosystem as well. It starts with our own flagship website.
So we will talk about that more in a minute. But the whole point is we will we are committing to drive our digital penetration in North America to over 20% in the next 5 years. Our own website is a big part of it. I'll come back to that. We've been experiencing double digit share growth with our department store partners on departmentstore.com.
So we're obviously going to continue doing that as they shift their model to a change in consumer preference. Next, if we talk about pure plays, we're really excited about the innovation and this is frankly a disruption that's happening in this space. And we like to partner when we hit the right criteria. So we have 4 very simple rules that we use to decide who we engage with and how we engage. And the first is we need to make sure that the brand shows up in the right way, has to have the right imagery, assets, experience, copy, all the rest.
2nd, we need to maintain our price integrity. 3rd, we like access to consumer data because we know that a lot of the fish are fishing we want to fish where the fish are and that's where they're swimming. And then the 4th is, is a commitment to test and learn. So to illustrate how we bring that to life, I'm very happy to announce that we're launching our Chaps brand with Amazon later this summer. So why does that make sense?
Well, we don't really have digital commerce for CHAPS, so it's a great way for us to get into the space. We know that we're working closely with Amazon to make sure that the brand shows up in the right way, collaborating closely on the assets, the imagery, the copy. We know that the AUR for CHAPS corresponds really well to what seems to be Amazon's sweet spot right now for where they're selling apparel. So we're very excited about this launch. And we'll, again, test and learn as we go.
And then finally, social commerce, you've heard about that earlier. We're excited by the experience we've had so far with Facebook and Instagram and look forward to building that out along with the rest of our digital capabilities. And then back to our website, we made a significant decision last year to get out of the software business and shift to an industry standard platform. So we have great infrastructure and functionality. That heavy lifting, a lot of teamwork and a lot of effort across the corporation was done last fall.
So now that the platform is stabilizing, we're focused on creating an immersive, engaging brand building experience on the site. So that's really focused on improved visual merchandising, removing friction on the along the consumer journey and importantly shifting our focus to customer acquisition and customer retention and away from the promotional cadence that we were clawed into in the past. So those are 3 of the big growth initiatives. They don't really mean anything unless we pull them all together into our 4th, which is all about coordinating all of the initiatives in an integrated way to drive this coherent consumer experience. So the example we have is Los Angeles.
As we looked at our market, we were surprised to learn that we under penetrated Los Angeles. Our national shares are around a 5, and L. A. We're about a 3. So 2 in L.
A. Is a pretty big growth, right, if we can get that correct. And we would have done in the past is we probably would have opened that store in Beverly Center, we might have updated a family of business, shop in shop in a wholesale market, that would have been a good thing, but it wouldn't have been enough of a thing. So we said, what would it take if we did it all together, if we coordinated all the efforts into one thing. So we came up with something we call Project 90,210.
That's Gen X humor for this crap. But what is Project 9210? It basically says, look, let's update every point of sale in 3 commercial centers, Beverly Center, Century City, Sherman Oaks. That's over 80 points of distribution between owned and licensed. It's opening a small format store in Beverly Center Mall.
It's refreshing our factory store in Camarillo. It's doing geo targeted marketing and localized activation. So it's a pretty big project and I'm really happy to announce it all went live 3 weeks ago. So we were I was just out there 2 weeks ago, because I wanted to check. And it's again, it's a little too early to make a read after 3 weeks, but the kind of feedback we're getting is very exciting.
So we all know that pictures speak louder than words. So I have a quick video to show you some of the before and after. So what you're going to see is the Camryo outlet store, you'll see the Beverly so we couldn't show you everything, so we focused on Beverly Center. You'll see a Macy's there, and then you'll see the small store as it opened, and then our flagship store on Rodeo Drive. And what you'll see, thinking like a consumer in Los Angeles, you're going to get a coherent brand experience, a different one, but a coherent one across each of those touch points.
So let me know what you think. Here we go.
Thank you. Thank you.
So again, after 3 weeks, it's kind of hard to read, but it feels like it's going to work, right? The kind of feedback we've gotten though is things like bright, easy to shop, transformed, compelling. These are words we like a lot. So we're this gives us a tremendous amount of confidence that we're on the right path on this strategy to get back to growth. So again, let me leave you how we started, which is that North America is an emerging growth story with a lot of opportunity.
We're at an inflection point. We're ready to grow and we have a clear roadmap to get it done. And not only that, but we're already in action. So thank you. And with that, I have to introduce Howard, who has to care about everything that isn't North America, but is a great partner as we collaborate on a lot of these great concepts together.
Howard?
Right. Time to get your container.
Thanks.
Okay. So you've heard from Geoff all about North America, and I'm going to spend some time talking about everything outside of North America. I'll spend a little bit of time with a headline overview of our International segment. I'll follow that with a couple of minutes on Japan, where we've implemented the strategies and the principles and the approaches that you've been hearing about today and got some really good results from that. Then we'll talk about China and the big opportunity to grow we see in China.
And then some time on our European markets and the headroom to grow we see in each one of the European countries. And through everything I'm going to talk about, I think you'll see those 3 guiding principles that Patrice talked to really coming through: driving profitability and productivity elevating and energizing the brand and putting the consumer back at the center, right? So headline overview. International represents just over 40% of total company revenues to date. We've got just about £1,000,000,000 coming out of Asia and about £1,600,000,000 coming from Europe.
Japan and the United Kingdom are our 2nd and third largest country markets worldwide. Distribution is broad in over 70 countries but also focused. We're doing the majority of business in 8 country markets. That's the top five EU economies, U. K, France, Germany, Spain, Italy and in Asia, Japan, South Korea and China.
We've got an elevated brand position right across these markets, premium assortments, substantially higher AIRs and AURs than you see in the United States, substantially lower discount rates. And it's a valuable consumer base we're working with, young, affluent, fashion conscious, brand aware. And we overpenetrate to the market with millennial communities. It's been a good 3 years of performance across the International segment. Revenue CAGR of 2%, great operating income leverage, right?
19% OI CAGR. And look at that AUR increase. Think about the guiding principle, right? Energizing and elevating the brand, a 12% increase in AUR over that 3 year period. And one thing I think is important to reference, you heard Jeff talking about the work the North America team has done with the elimination of 25% of wholesale points of sale in the United States.
Well, the same thing has been happening in international. We've been ruthlessly eliminating low quality revenue and ruthlessly eliminating weak distribution. And what does that mean? It means that the underlying growth rate through that 3 year period is quite a bit higher than the 2% you see on the screen. You can see that.
And we have confidence that over the next 5 years, that growth is going to continue. In fact, we see that growth accelerating, and we're forecasting a mid single digit growth rate for the International segment. So we have 2 key goals. The first, and I think Patrice mentioned that this morning, is we want to see the revenues in International exceed 45% of total company revenues. And of course, we want to return to positive comp growth in every one of the international markets, in
every one of the international segments. So how are we going
to do this? Well, we see So how are we going to do this? Well, we start with that balanced ecosystem that we were talking about this morning: elevated factory stores, small format stores, quality wholesale partnerships and digital commerce. We've got to expand our presence where we're clearly underpenetrated. We're clearly underpenetrated in China and in Europe as well.
I mean, just to give one example in Europe, our United Kingdom business is bigger than our German business. But if you look at the total potential value of the market to our brand, Germany clearly bigger than the U. K, just one example. And we're going to accelerate our direct to consumer business. We're going to focus on small format stores and digital commerce.
And we're going to continue partnerships with the best retailers in our wholesale segment, partnering with our best retailers, quality wholesale partnerships right across the international markets. And as we do this, of course, we'll be reinvesting in the store fleet, both our own stores and Wholesale Corners. And we expect strong returns against those investments. So let's talk about Asia, and I'll start again with a very quick overview. So in Asia, we're in 10 countries.
7 of them we manage directly. We've got about 1,000 points of sale, and 700 of those are directly owned and operated, stores and concessions. So when you look at Asia, it's majority direct to consumer, a small, elevated, important and growing wholesale segment, but majority direct to consumer. Very high awareness of the brand, 90% in Japan, about 75% in South Korea and across the whole of China, 60%. But if you drill into some key markets like Shenzhen or Shanghai quite a bit higher than that, the consumer is young and affluent and brand conscious.
And again, in Asia, we overpenetrate the market with the millennial communities. And we've got obvious opportunities to grow, headroom for expansion in every Asia market. And that comes, of course, from distribution expansion. But you heard the things that Barry was talking about in terms of category growth, category development. Denim, wear to work, outerwear, footwear, accessories, these are elements that are fundamentally important to every market in international, fundamental.
And we see opportunity to grow with price, price, assorting into higher AIRs with a more elevated proposition. And everywhere we see opportunity to grow with digital commerce. So I said we'd talk about Japan just for a moment.
I'm going
to take some water. So I moved to Japan just over 5 years ago. I spent a couple of years on the ground in Tokyo before I moved to China. And we ran a reset program, a turnaround program in Japan, and that drove some really super results that we're very proud of. And so let's take a look at just some of those.
So over the last three years, our revenue growth CAGR of 6%, That's good. Operating income CAGR, 37%. That's right. The number's right. And through that 3 year period of time, the AUR shifted up 20%, a fundamental repositioning of the business in Japan, elevating and energizing the brand.
Remember the principle, driving productivity and profitability. You can see that coming through. So how do we do this? Well, I broke this into 3 themes: localization, brand elevation and ecosystem. So let's talk localization just to illustrate.
6 years ago, in Japan, our executive leadership team in Japan was entirely expatriate, either Americans or Europeans. Today, Japanese led, Japanese team on the ground in Japan, fundamental. Localization, let's think about marketing. 6 years ago, very oriented towards print, very oriented towards global international titles. And those global titles are still important to us, of course, today in Japan, but we've seen a shift into local digital forums, local social media environments, local celebrity associations, local titles, localization.
And let's think about assortment. And Valerie touched on this in sort of the regionality of assortment when she was talking this morning. But we've adjusted the assortments in Japan to match the trends and nuances of that country. And even within that country, we customize assortments by city and by location to match those different nuances when you compare Sapporo in the north or Fukuoka in the south and brand elevation. Again, I said we were ruthlessly eliminating low quality revenue.
Well, over this 3 year period, we eliminated several 100 points of sale in Japan and replaced them with higher caliber, higher traffic, stronger locations, more prominent locations with more elevated adjacencies and a more strategic approach to pricing. Look, pricing starts and stops with the consumer. And so we looked at the consumer, at the product, at the competitive set, and we priced at a premium above the competitive set, category by category, piece by piece. And the consumer is following us. And you can see that with clear market share gain.
I was going through some of the Q4 numbers in Japan with Mitsukoshi Isetan, key partner of ours there. And I was looking at our performance versus the peer group average. And for our men's business, we outperformed the peer group by 8% in the 4th quarter with Mitsuboshiistan Group in Japan. So you can see the pricing approach working. And total ecosystem, Jeff talked about it.
Patrice has talked about this. It's really about looking at Japan through the eyes of the Japanese consumer, the consumer at the center, another principle, right? Consumer at the center. And it's also about the success we've had with our small format store model. Jeff talked about opening in America.
We're going to talk about how successful they are for us in China. But a profitable, productive, successful small format store model that's really worked for us in Japan and, of course, a powerful digital presence. So this formula we see as being transferable. Just two quick examples. If we look at Australia, we bought our business back from a it's a formally licensed territory a few years ago.
And of course, when we bought it back, we were able to run direct intervention in the market, again applying the principles, the strategies, the approaches we've all been talking about today and look at the results. Sales CAGR 11% operating income CAGR 2 50%, that's real and an AUR increase of 11%. And you look at South Korea, operating income CAGR 28%. AUR increase in 3 years, 21%. These are big shifts.
You folks know that, right? These are really important changes, elevating, energizing the brand. And even though that sales CAGR is a minus number for South Korea, minus 2%, at the end of the last fiscal year, the year we just closed and reported, we showed good growth in South Korea, and it was our 1st growth year in South Korea for nearly a decade. Really good. So let's talk about China.
So we're growing in China. You saw the earnings release, right? Everyone saw that. We're growing in China nicely. And we're growing through physical stores and digital commerce, and we're bringing those two elements together.
And that unlocks a symbiosis. We're offering a seamless online to offline experience, consumer at the center. And last fiscal year, we opened nearly 40 small format stores in China. This year, we're going to open more than 50. So we're moving at a pace.
And what we know is those small format stores, productive, profitable small format stores that have worked so well for us in Japan and in South Korea, well, they're working very nicely for us in China. So let's talk about the physical rollout to begin with. We take what we call a city cluster approach to China. We've identified 6 city clusters: Beijing, Shanghai, Chengdu and then in the south, Shenzhen, Hong Kong and Taipei. And just to illustrate how that works, we have different tiers of China City.
People talk about Tier 2 cities, Tier 3 cities. So for example, Tianjin is within the Beijing cluster. Chongqing is in Chengdu. We have Ningbo and Suzhou inside the Shanghai cluster. The Shenzhen cluster extends down into Guangxi province.
So you can see how we fit those together. And taking this very focused geographically focused approach, we're able to manage cost to serve. Better inventory productivity, better supply chain efficiency, better retail operations efficiency. At the same time, in the last year, we've launched beautiful, curated, elevated digital stores on Tmall, part of Alibaba on jingdong, jd.com on WeChat, Tencent's amazingly versatile application. So we said physical stores, digital commerce, bringing it together.
Imagine you live in Shanghai. Imagine you're all living in a suburb of Shanghai. Let's call that Suzhou, the Jersey City of Shanghai. And you're about to go to bed, right? So if you're living in China, you're about to go to bed, you're on WeChat.
That's what we're told, right? We know. And you go on our store and you order a piece from Ralph Lauren on WeChat. Next day, you take the train to work, work all day. At the end of the day, you can go to your the Ralph Lauren store in downtown Shanghai around the corner from your office and pick up the piece you ordered last night on your phone.
You can substitute that piece for someone else in the store. Or better still buy something else in the store to go with the piece you bought. That would be better. Or if you bought a sport coat, you can have it altered in the store. So you can see that seamless online to offline experience, consumer at the center.
This is what we do today. So outside of the city clusters, we're adopting a digital only approach. So from Liaoning in the Northeast all the way down to Guangxi in the Southwest, Inner Mongolia, We're offering same day or next day delivery to virtually nearly every province in the country. I'll tell you a story about that. My children are half Chinese, and I spent a lot of time with the Chinese side of the family in Guangxi.
We're in a very small village about an hour outside of Beihai in Guangxi. It is a long way from anywhere we're likely to put a store anywhere in the near future. And we were sitting around, and I was actually showing off our new digital store on WeChat. And I ordered a Polo shirt. Following day, immaculately dressed guy shows up on a gleaming motorcycle with a beautifully gift wrapped package.
The system works. It works. And Valerie was talking about the energy and the desirability around these limited edition programs. And Valerie, when we did the Elk Ridge limited edition drop, we put that on WeChat, and we sold every single piece within 48 hours. It's incredible.
A couple more things on this slide. So I want to talk about these digital partnerships. They go a little bit beyond the direct to consumer piece. And Patrice, I think you talked about big data. We're drawing a lot of information from these relationships with Alibaba and with Tencent.
And that information is shaping and informing making processes in all sorts of ways. We can see which consumers by which assortments in which cities at which time of year this is useful, right? It's informing where we decide to put our physical stores. It's showing us where we can find what we call look alike consumers, consumers that the data shows us that our brand will resonate with. And then lastly, remember what I said about the local Japanese team, that importance, the importance of local talent?
Well, in China, we have a Chinese led, Chinese team on the ground in China, and we're confident that we're going to deliver this $500,000,000 of revenue in China by the end of the 5 year period, 150 new small format stores and a digital CAGR, a revenue CAGR of 75%. Now I've just put a very brief set of images together, that's the next slide, some moving images, just to bring the words and the numbers to life so that you can see some pictures of the stores we've opened in China over the last 18 months. So this is Harbour City. It's a very small format store, dual gender. It's working very nicely for us, very profitable store.
This is Shanghai, Yaohan, another dual gender small format store, beautiful expression. Beijing Oriental Plaza. This is one of the most premium malls in Beijing, and this store is performing very well for us. It opened roughly 6 months ago. And this is Wangfujing, 500 yards away from Oriental Plaza, no cannibalization, 0.
Very profitable store for us. So we're very, very pleased with how Beijing is coming together. This is Shanghai Park Place, one of the most emblematic locations in Shanghai, powerful adjacencies. And here, we're offering Ralph Lauren Collection, Ralph Lauren Purple Label, the most elevated proposition, together with men's polo, women's polo. It's a beautiful expression.
This is our Kowloon flagship, and you see this amazing and amazingly productive coffee shop that's generating huge interest, bringing traffic to the store. And again, in this location, we have Ralph Lauren Collection, Purple Label, a little bit of RRL, menswear, men's polo, women's polo. It's a really nice expression. And David, we have this high technology interactive customization shop that's really helping to drive energy and business integrated into this store. Okay.
Your water. So Patrice and Jonathan talked about the importance of culture. Culture, weaving our brand into culture, right? And this is a picture of the Bund in Shanghai, one of the most visited locations in China. And there's a projection onto that building of Li Bingbing, one of the most followed actresses in China.
She's wearing Ralph Lauren collection, our most luxurious expression of women's wear. And we shot Li Binbing in a number of different looks. And for a whole week last year, we projected those looks onto that building on the bundt. And just to underscore the desirability, the success of our Luxury Women's Wear in China, within 10 days, we've we had sold every piece of every look that Li Bingbing wore on those projections. And Jonathan talked about the filter bubble.
And I've put a short video together because I wanted to illustrate our success in persuading the Chinese to invite us into their filter bubble. Short video, but you'll see many of the things that Jonathan was referring to, right? You'll see use of social media, digital marketing. You'll see celebrity association. You'll see culture again, leveraging on culture.
For example, the China New Year's countdown moment. It's watched by more than 400,000,000 people live on network TV. It's huge. And this year, 3 of the presenting celebrities were wearing Ralph Lauren Collection. So I'll play the video, think about that persuasive approach to the Chinese consumer, invite us into the bubble.
And when I play the video, take a look at the numbers of followers against each celebrity. They're very impressive. Some are Instagram. Most of them are Weibo. But take a look.
It's an interesting video. Okay. So now let's talk about Europe. We'll start with a very quick snapshot. We're in 50 countries, many points of sale across 50 countries.
But majority of business, remember, in the top 5 EU economies, U. K, France, Germany, Spain, Italy. And we have a very strong digital presence in this region. High levels of digital penetration, high levels of digital commerce growth. Sky high brand awareness in all the key countries with prominent positions in all the key cities and really strong adjacencies across the network.
Again, you'll see the consumer is young, affluent, brand conscious, fashion conscious, and we are overpenetrating the market with the millennial communities. We see those same opportunities from distribution expansion and category development and price are sorting into higher AIRs. We, of course, see opportunity from digital commerce. But what's interesting for our brand in Europe today is we see a big opportunity with physical stores and developing our full price physical store network and opening more stores in Europe, and I'll come to that in a moment. It's been a good 3 years for Europe.
If we look at those 3 year CAGRs, revenue up 3%, good leverage, operating income up 8% and the Digital Commerce revenue CAGR up 21%. If we go back to the ecosystem, one of the key constituent elements is partnering with quality wholesale. And we partner with some of the best retailers across the European region. So just a couple of images to show you that. I mean, in London, we're, of course, with Harrods and Selfridges and Liberty and Harvey Nichols.
We're in Paris with Le Bon Marche and Trenton and Galeries Lafayette. In Italy, we're with La Rinaciente in Rome and in Milan in the Duomo store. We've got some great locations with Ilham in Copenhagen. We're with Cardewey in Berlin, Lotenfrei in Munich. I mean, these are very emblematic positions.
And in Russia, we have some amazing positions in ZUM in Moscow. So I said we have a strong position in digital, high digital penetration, high digital commerce growth. Well, I put together just a short video that brings that to life. It will give you a 2 minute exposure to how we show up to the consumer in Europe. Just as Jeff spoke to, we have 3 key elements of our digital business in Europe, right?
We've got our own websites, raffauren dotco.uk, raffaurenpfeiFair, etcetera. We have really important close collaborative partnerships with the big peer players, Orlando in Germany, Boost in Scandinavia, ASOS in the U. K. That Jonathan referenced. And of course, we have the digital extensions of these wonderful partnerships we've just been looking at.
So think about the European consumer and how we're persuading the European consumer to invite us into their filter bubble. So last slide on Europe. I talked about the opportunity we see with developing our full price physical store network. Strong position in digital, high penetration, high digital commerce growth. You've seen those high Canada Wholesale segment partnerships.
But in the whole of the European Union, 2nd biggest economy in the world, dollars 15,000,000,000,000 of GDP, we have 19 full price stores, 19. So even with the world transitioning to digital, we don't face the issues that some folks face with an overextended physical network, how do we rationalize, what do we do, the world is changing, we're moving to digital. We don't see that problem at all. Whole of the European Union, 19 stores. That's headroom for growth, right?
I mean, this is a financial community here. You must know Zurich. How many stores do we have in Zurich? Anyone know?
0.
Everyone, I was asking the audience. How many in Manchester in the U. K? 0. Lyon, 2nd biggest city in France, right, Patrice?
I'm correct. 0. Let's turn to Spain, Madrid, Barcelona, 0. I just want to illustrate that headroom for growth that we see. So I hope you're taking away from the European segment that, again, those three principles are coming through: driving productivity and profitability elevating and energizing the brand and putting the consumer back at the center.
So to summarize, clear and unequivocal headroom to grow in every market. Clear. Compelling strategy, carefully thought through plan and strong and experienced management teams on the ground appropriately localized. It's clear. And today, you've heard those strategies from Patrice.
You heard Jonathan talking about the cut through marketing techniques, Valerie and all that exciting work that's happening in terms of product development, the amazing innovation work, David, that you spoke to. And now you've heard from Jeff and I on how that all comes into these retail worlds that connect with the consumer. But ultimately, for all of you here, this really only makes sense when it all fits together into the financials, right? It's what it's all about. So cue my friend Jane.
All right. Thank you, Howard. And thank you all for being here today. But most importantly, I thank you for being on this journey with us because I know how patient you've been. And so I'm thrilled to be here today to share the actions that we're undertaking, the strategies that we are embarking on and share with you the results that we are fully committed to delivering.
And if there is one thing that I think undergirds everything that we are saying today, It's that we are doing the right things for the brand and for the long term health of this business. And Patrice and I go in every quarter or more frequently to talk with Ralph about the directions that we're taking, the strategies that we're thinking about or the results that we're going to deliver. And I can tell you there's one singular question that he asks us every time we're making a decision and that is, are we doing the right thing? And I believe, as we've all stood here today, that we are doing the right things, that our strategies, our purpose, our goals and the financial results we intend to deliver, they're all aligned. They're all in harmony and they're all oriented to elevating this brand and driving profitable long term growth.
Now I know over the past 2 years, almost 2 years, I've shared a lot of numbers, a lot of results, a lot of charts with some of you, and I promise I'm not going to disappoint you today. But I thought I'd start with a slightly different take on the question, what inning of strategy renewal are you in? Now some of you are probably painfully aware I'm horrible at sports analogies. So I thought I would start with something a little bit closer to home for me, which is a farm. So because for generations, my family has farmed corn and soybeans on a small farm in the Midwest.
In every season, my grandfather, with patience, sweat, passion and love went out every season and he made sure the weeds were pulled, the land was fertilized, the rows were tilled and the best seeds were planted. It was a tremendous amount of work. And to the casual passerby, you couldn't really see what had been done. But he believed, no, he knew. And he instilled in us that there's no substitute for hard work.
You have to do the right things for the long term. And that for there to be a bumper crop, you have to have a solid foundation. And for me visually, that is where we are in our strategy renewal. We have done and we are doing the hard work and we're doing the right thing to set a foundation for our business to grow from. So I'm going to pull you out of the cornfield, back to the charts because as I step back, we have done a significant amount of work.
We went through a challenging period. We've talked about those challenges and those lessons. We know that the brand got overextended. We know that we were in a period of over promotion, that we are making investments that were internally focused. And the lessons that we've learned from those challenges are that excessive discounting mortgages the future of the brand.
The inventory discipline is essential to elevate the brand and drive AUR. And the capital investments that are internally focused don't change the image of the brand in the mind of the consumer. And our teams talked about some of those lessons. And with Slee's lessons and many more, we moved to reset the business and we made a lot of progress. We elevated our distribution, we drove quality of sales, we streamlined the operations and we improved our financial progress.
The team has talked a lot about that today. And there's a lot that's durable to here. We raised AUR in the last year of our reset, up 4% after 5 consecutive years of decline. That's going to continue. We increased our GIMROI on our SKUs, our gross margin ROI on our SKUs by 30%.
We're done cutting, but we're not done making our SKUs more productive. That will continue. We've elevated our distribution. We closed 75 unproductive doors. We closed 25% of our wholesale points of distribution.
And in North America, as Jeff mentioned, our off price wholesale business, we pulled it back by 35%. And we've improved our financial position, and that's going to continue, expanded gross margin, and we continue to do that. We've got control of SG and A, leverage is getting tight productivity. We'll continue to do that. And we've got $1,000,000,000 more cash in the bank and we are going to continue to generate cash.
We've learned our lessons, we've set a solid foundation and we're continuing that momentum. Because we believe, we know that we are ready to change the trajectory of this company. We have a solid foundation. We have the strategies that can deliver. And really what I love about this plan is it takes what we've been doing, driving productivity, driving quality of sales and does what Patrice and Ralph mandated that this plan had to do was to add that missing element, which is getting back to top and bottom line growth.
And that's what this plan will do in the right way, doing the right things for the long term. So we've talked about we're reiterating our FY 'nineteen guidance that we gave on the Q4 call. We expect FY 'nineteen for our revenues to be down low single digits with FY 'twenty being the year that we will get back to top line growth and bottom line growth. We're going to move with sequential progress through the 5 years that by FY 'twenty three, our growth rate will be mid single digits, our gross margin will have expanded to the low to mid-60s range, and that we'll have a mid teens operating margin. Now that outlook, this outlook is premised on really a multifaceted value creation model.
And what it does is what you've seen us do. It takes what we've done well, expanding gross margins, driving productivity for growth and adds revenue, drivers that Valerie talked about, the underpenetrated categories that we see that we've got a significant opportunity in, reenergizing our core, capturing the consumers that Jonathan talked to you about and really energizing the innovation that David and team are bringing to the market. And all of that comes together to deliver top tier TSR for Ralph Lauren. And what that allows us to do, it allows us to continuously invest in our business, strengthen our financial position and return capital to our shareholders. So let me take you through the model and I'll start with revenue.
As I look at our revenue growth trajectory, what I love about it is it's incredibly well balanced. Over the next 5 years, about half of our growth comes from comp, a little more than half comes from a comp, driven by energizing the core, building those underdeveloped categories, capturing and recapturing consumers and renovating our store environments. And about 45% comes from new distribution, net of closures. That's the international expansion that Howard talked to you about. It's the small format doors that both Jeff and Howard talked about, really reenergizing our distribution.
And what that does is it allows us to continue some of our quality of sales work. I expect that the pullback in off price will continue through the 5 year period. I expect that some secular challenges in wholesale will continue and we've contemplated that in this algorithm. Let me give you a little bit different look at growth and look at revenue from a channel growth perspective. Our bricks and mortar stores, new and comp and directly controlled retail, which would include ralphlauren.com, Our owned bricks and mortar retail will be about 60% of our growth and about 40% of our growth will be digital.
That's a combination of the ecosystem, ralphlauren.com, wholesale.com and pureplayers.com. And you can see I've called out for you, we believe that wholesale.com is a great driver of growth. But as I look at the off price section of wholesale and the bricks and mortar section of wholesale, we do see that that will be compressive to overall growth. But our two drivers, digital and bricks and mortar stores, are powerful enough for us to get to our growth outlook and continue to be realistic about the environment that we operate in and continue our quality of sales journey. So with those things coming together, the profile of our revenue is really going to look different in 5 years.
In 5 years, our international business grows to over 45% of our business. Our direct to consumer and digital wholesale penetration goes from 60% to 70%. And our wholesale bricks and mortar, of which off price is included in there, declines to about a little less than a quarter of our business. Now if I turn now to an area that has been a strong area of strength to us, gross margin. We are today as we closed FY 2018 at the highest gross margin in the country's history.
And so many of you ask, well, is the margin story over? And to that, I have an emphatic answer. Absolutely not. Because if you look at this slide, and if I could ask you to turn it 90 degrees, and you'll think of it as a scale, the drivers versus the offsides, you'll see why I'm so bullish about our gross margin expansion. Now it won't be at the magnitude that we've done during the reset, but I believe there is sequential gross margin expansion opportunities through the tenure of this plan.
Why? Because the number one driver that we've already proven out over the last 2 years continues to pay dividends for us, pulling back on discounts and promotions and pricing. We have opportunity in pricing because we've got better products with better full price sell through and better terms. And with that, supported by better analytics, we see that as those two factors together being strong drivers for us on the gross margin front as we move forward. There are some mix elements.
As international grows and exceeds the growth of our North America market, happily both are going to grow. But as international drives that growth, their gross margin is higher than the North America margin and we get some tailwind benefit from that. As we accelerate our direct to consumer, that gross margin is higher than the wholesale margin. And then finally, as we product mix and as we move into these new categories, their AURs are higher and their gross margins are extremely attractive for us. Very powerful drivers for sustained and healthy gross margin growth.
What's going to offset that? Well, some of the things we've already are starting to see today, product cost, I know that we're entering a more inflationary environment, we see it in cotton, we see it in polyester, we see it in down. So we're confident that our pricing can fully handle that and a little bit more. And we are committed to driving quality into our product. And some of that gross margin expansion will be invested back into driving product quality.
So what does that deliver? 50 to 75 basis points of gross margin expansion on a constant currency basis in the coming year. And then over the next 5 years, we'll get to a stable to low to mid-60s gross margin and it's going to be some nice sequential expansion as we move through the years. So let's move on to another area that I think has been a strength for us, which is productivity. And really, as we thought about this plan, this our productivity has two purposes.
1 is to fund necessary investments in our business and 2 is to expand our profitability. So how do we think about productivity? We're thinking about it in terms of a couple of absolute ideas that we can rally around. It's about speed, it's about flexibility, it's about simplification, agility and efficiency. So what are we doing?
We're taking our fast and flexible supply chain and we're going to push our lead times even harder to be closer and closer to the market. So we're really happy that we went from 15 months to 9 months. Now we're going to go to 6 months. And within that 6 months, there'll be averages that are 3 months lead times. As we become more and more flexible, keeping that inventory disciplined mindset and can fulfill demand much faster as we can read the market closer to the market.
We are a design company. This is from design final to on the shelf. That's how we define our lead times. We're also looking at driving seamless end to end processes. So we're stepping back from the sketch all the way to servicing the end consumer post purchase and looking at that at an integrated fashion and saying, what can we do to be more efficient, faster and more effective.
As Jeff talked about, we are breaking down silos. We are creating seamless handoffs between the teams and we're improving our visibility so that we can track productivity gains and productivity losses and attack them. What does that do for us? It helps us reduce costs like airfreight. It helps us to leverage design talent across categories rather than having to repeat development talent by brand and by category.
We're sharing inventory. Inventory management is critical on so many levels. To raise AUR, you got to have tight control of your inventory. To control your channel and control your distribution, you got to have tight control of your inventory. We our inventory is in great shape.
We are keeping control of it. We're not going to starve the business. We're not afraid to invest in inventory. But we know the inventory discipline is critical. What are we doing?
We're going to share inventory across channels. We're starting this calendar year. We're going to combine our e commerce inventory with our store inventory. We need less buffers. We can sell out at a full price sell out because we sell to the highest margin bidder, if you will.
And then as we move through the year, we're going to add wholesale to that. It makes our inventory more efficient, helps us, we don't lose out of stocks, we sell at a higher price, strong productivity there. And one of the things we're doing is really changing the mindset of the company. It's really to take not to be cheap, although I am, but to really challenge every cost. Can we do this differently?
Can we be more effective? Can we be more efficient? For instance, what are we doing? We are putting a significant portion of all our vendor contracts out for bids, renegotiating, strong procurement initiative. What are we doing?
We're having deep controls over things like air freight. Do we need to air freight it? Is there a more efficient way to do this? Using technology, using RFID to take labor out of the store, to signal our replenishment signal at the distribution to lessen fulfillment times. 2 years ago, we were at almost 11 days in fulfillment on our factory channels.
Our goal is to get we've gotten that we've cut that by half. And in some areas, we're moving into 3 days from out of stock signal to fulfillment in our doors. Tremendous progress, tremendous efficiency. And I think the unsung hero on this page is really strategic revenue management, growing our AUR, taking advantage of the elasticities that we can use data and analytic tools to evaluate and taking advantage of competitive opportunities not only that we see in our product but that we see in the competitive landscape. We're going to drive AUR because that's all about elevating our brand, creating desire.
What will that deliver? We're going to expand our operating margin in FY 'nineteen. And we're going to get to a mid teens margin by FY 'twenty three. This is a critical element. Comp growth is a critical element and gross margin is a critical element.
But we see all of those laddering together to deliver a mid teens operating margin. Now we've talked about the marketing investments that we need to make in the business, but we know we also need to make capital investments. And we're going to put our money where our mouth is. We're increasing our capital investments to go from where we were this last year about 3% to 4% of revenue. Why?
Really, the last two years have been a test and learn philosophy. We tested the small format stores that Howard talked about. We're doing the LA market test that Jeff talked about. We've tested RFID and are now ready to roll that out in a more significant way. We're ready.
We've tested these ideas. We know they return. But we're not going to go back to 4% to 5% in the same old way. We are going to put our investments to face the consumer, to change their experience, to change the shopping environment, to change our digital environments, to add functionality there. So if you think about where we were flipping, we're going to be about more than 2 thirds consumers facing and about and a little less than a third on infrastructure and internally facing investments.
So we're going to be spending that money. What does that mean in terms of capital for our shareholders? Well, the good news is we're really consistent because our priorities for cash haven't really changed. What are we going to do? 1st and foremost, we're going to invest in our business to get it back to profitable growth.
1st, among all equals, we're going to spend, as I said, about $275,000,000 in CapEx this year, we're going to invest in consumer facing. 2nd, we're going to return capital to you, our shareholders. We're targeting to return over the course of this plan for the next 5 years about a little more than 100 percent of our free cash flow to shareholders. How will we do that? First priority in the form of our dividend.
We expect over time that our dividend will grow in line with net income growth. And the excess cash in view of our current and future needs to invest in, number 1, in our business will be used for repurchases. And over the next 2 years, we will repurchase over $1,000,000,000 in shares. That's a significant statement. And I hope what you read from that statement is, we're confident in the strategy and we're confident in the financial goals that we're committing to.
And I know we were a little conservative over the reset time. And so really what we're doing in our capital returns acknowledges that for our shareholders, for all of you and because we believe in this algorithm. Now while we're not an acquisitive company and there is no acquisition planned in this 5 year outlook, I would say that we are highly selective. And if something came along that built our capabilities or added value to the brand or to our and was in the interest of the company and our shareholders, we would consider an M and A investment, but we're not an acquisitive company. What does that do for us?
What does these capital guardrails really do for us? I believe it helps gives us strategic flexibility. I believe that it puts us in a strong financial position and it gives us great access to the capital markets. We're committed to an investment grade credit rating. So what does this mean for FY 'nineteen?
Well, we talked about CapEx and we're going to return cash to shareholders. Our dividend is going to go from $2 this year to $2.50 up 25%. Our share repurchases are going to be at least $400,000,000 this year. And again, we'll spend over $1,000,000,000 over the next 2 years. And that share repurchase will occur about ratably as we move through the year.
Again, it's a tangible show of our confidence in our brand, in our business, in our strategy and in our execution. So to our guidance. And as I said, we're reiterating all the guidance that we gave on the Q4 call. But before I take you through the numbers, for you this represents, I hope, a clear consolidation of all the financial guidance that we've given. But for me, and I love this slide, because for me it represents the thinking of our teams, thinking about every initiative that ladders up to our purpose and to our vision, to the investments that's required to deliver that, to the benchmarks that we have to hit in order to deliver that, to the metrics that we're now monitoring all of these initiatives on, it really represents the coming together of what has been a really granular look at our strategy, but that's guided by the purpose and the vision for the brand.
So with that, covered some of FY 'nineteen, down low single digits, gross margin expansion 50 to 75 basis points, slight expansion in operating margin, dollars 275,000,000 in cash. FY 'twenty, return total company to top and bottom line growth with OI dollar growth and margin expansion. So that when we get to FY 'twenty three, mid single digit growth in that year, stable to lowtomid60s gross profit margin, which I think will put us at the top of the class of apparel companies, a mid teens operating margin and we'll be spending about 4% to 5% of sales. It will be a little lumpy as we build out, 4% to 5% in terms of CapEx. And you're going to see us move progressively stronger from year 1 to year 5.
And that will deliver $1,000,000,000 more in revenue at a low to mid single digit compound annual growth rate. Cumulus will be $300,000,000 more in operating profit, and we're going to return over $2,500,000,000 returned to our shareholders. It's a deliverable algorithm. It's a heavy lift, but we're already doing it. We've already paved the way.
We're pushing off a great foundation. This is what we're committed to delivering. And I can tell you that I'm committed, everyone on this stage is committed, Ralph is committed, Patrice is committed, and 23,000 Ralph Lauren employees are going to bring passion and commitment to delivering the business results that this brand deserves to deliver. So if I could leave you with three thoughts from this. We're committed.
We're back to growth top and bottom line in FY 'twenty. We have the brand, the strategy and the team to deliver. We've got a strong balance sheet. We generate cash and that puts us in the position to deliver profitable growth and to return value to our shareholders. We're ready.
And if I could leave you not with a statement or not with a number, but a picture of what I see for our future, it's a bumper crop. Thank you.
All right. We're just going to take a couple of minutes to get the stage set
Yes.
Sorry.
Valerie, David, you guys ready?
All right. As we have the hard stop for the closing valve, we're going to get right to it. All right, guys, all set.
Yes. We're
all
set. Perfect.
Question. John Kernan, do you want to wait for the mic right here? And then if you could introduce your name and your company name for the webcast participants, that would be great.
Sure. John Kernan from Cowen. Thank you for such a robust presentation, very insightful. So Patrice, can you go back to the whole Gen X versus Gen Z and Millennial conversation? What gives you so much confidence that you can reengage Gen Z and Millennial consumers and distinguish the brand versus your competition that's also not standing still?
Sure. And then let me start it off and then I'll ask Jonathan to add some flavor on that because obviously a lot of that is the marketing. So as far as millennials are concerned, you saw today, we're actually in a strong position as far as millennials are concerned, right? That's true both in North America and around the world. What we're going to continue to drive though is products, and you heard Valerie talk about how we're going to energize the core in a way that we're bringing excitement and we're bringing innovation to the core so it resonates with millennials, expanding into different categories that actually are important to millennials, the denim category is highly relevant for millennials, true for Gen Z as well.
Some of the Where to Work aspects also really is important for that group. So product, first element. 2nd element is this concept of fish where the fish are, which David actually Jeff says on a regular basis. From a communication standpoint, we're going to be a lot more focused on where that consumer is, and that's been true both for Millennials and Gen Z. And honestly, historically, we haven't been, right?
We've been a bit more skewed towards more Gen X and boomers in terms of where we invested our money. So that pivot, and you've seen it throughout the quarters in terms of spending more in digital, spending more on the platforms that matter to these consumers is key. And then within that, how do we leverage the influencers that are relevant for that generation and that group? I am most inspired actually by what Howard and his team are doing with Cecilia in China, because I think that's kind of the tip of the spear for us in terms of how we want to connect with influencers that are authentic, that are impactful, that really resonate with the target that we're going after. And then the 3rd piece is the commerce piece, where likewise the fish where the fish are concept is also quite relevant here.
We believe in the ecosystem. I think that was pretty apparent throughout the day. We know there are some elements of the ecosystem that are off kilter. Digital commerce is going to be a key acceleration area for us. We're starting to get active in that space.
Getting our website to the standards that it needs to be for the brand that we are and for the consumer expectations is another plank of that. And then the small format store interestingly has many benefits, one of which is it appeals better to that those generations, right? And what we're seeing is millennials and Gen Zs prefer stores that are maybe more approachable, better connected. You heard Howard talk about how everything was connected. And so we're actually excited about what these this pivot from a go to market standpoint can bring us in terms of appealing specifically to millennials and Gen Z.
So I'd say product, communication, shopping experience and engagement. But Jonathan, I'm sure you can add some additional flavor.
I'm not sure actually. That's a pretty full answer. But I think the thing that I would say is that we and we kind of have unpacked this I think across the day to day. We feel really good about the profile that this brand has out in the market. And by that, I mean the values that we stand for.
So we talk officially about the dream of a better life. But I think really in the world of the consumer, the idea of the dream is real. The idea that you can fulfill your potential. The idea that this was a brand built by a man, a family, real family and his extended family and work, to become something that he had always dreamed it to be. I think that's a universally aspirational promise.
And I think those are actually the values that many millennials will ascribe to. Many people in Gen Z, they look around them now and they see people who have the opportunity to build their own life, their own success story, whether they live in the U. S. Or in China or in Europe. So we feel good about that.
But the opportunity is how we get that story to people, the channels that we choose to tell that story, the products that we use to bring that to life. And then I think how we show up in that world, using culture, using influence, being more precise about the media channels that we use. So we really show up in that world and make that story feel fresh and relevant for the culture that they're interested in. So that's the story.
Great. Michael?
Thank you. Michael Binetti with Credit Suisse. I have two questions. I'll start with Jane.
Jane, would you mind giving
us a little bit of a history lesson to help us anchor ourselves on the gross margins being at peak? Can we think about you mentioned that you have some pricing power, a lot of the expansion has been driven by the change in the mix of the business. But where are the pure product margins today versus where they've been historically to help us understand how much upside there might be as
you guys move into some
of the parts of the strategy like pricing? And then maybe if the inventory commingling is a big opportunity, I know we're rushing through a lot of things today. And then for Patrice, a little bit of understanding how the company is playing defense a little better today. You had to come in and maybe change some behavior at a big organization that previously led to buildups in inventories and people who were incentivized that led to those ends. What have you changed in the incentive structures of the organization to help change the thinking on how to approach their jobs day to day to avoid that kind of thing in the future?
Sure. Why don't I start? So in terms of gross margin history lesson, I think you called it. But so what I see in gross margin is that over the last two years, the biggest driver of our gross margin expansion has been very durable over that timeframe has been promotion reduction and pricing improvements. So some of that's AIR IMU improvements.
The biggest portion of that has really been reduced discounts. Now we think as we move forward, so that net net net has improved our overall product margin. So we've had IMU benefits and we've had discount benefits. As you play those together, product margins have improved over the next over the last 2 years. We expect that momentum in terms of pricing, encompassing promotion and all of its levers to be the number one driver of gross margin expansion as we move forward.
In fact, as I think about the drivers of gross margin, it's about half of the expansion that we expect over the next 5 years. That's the number one driver. There are mix elements, and I would combine them in terms of country mix elements. That's the next driver following pricing. And then product mix elements.
And that's really from what Valerie talked about in terms of moving into some higher price, higher gross margin areas like outerwear, accessories and denim is a very healthy margin for us. So those mix elements help us and they account for about a third of gross margin expansion over the next 5 years. And then there's some other elements to gross margin that we can get through supplier efficiency and things like that, that we're working on. As I think about offsets, the number one offset is what's happening from an inflation environment and then the investment in product quality. And so we're managing those.
We've netted them out in our guidance, and we still see gross margin expansion through the time period. And then in terms of your second part of your or the second part of your 3 part question was inventory management. So we think it's a big idea. I think it's important to help us drive inventory turns further, especially as we start to build inventory to support growth in the long term. But more importantly and takes buffer stock out of the system, but more importantly helps us not have it's in our system the out of stock which we experience today.
It takes that down and it enables more full price selling because you're not having to go you're not taking those time based markdowns, you'll be able to sell out and delay the time based markdowns when you have inventories trapped in a single channel. So I think it's a big idea. I don't think it's a revolutionary idea, but I think it's important as we go through our efficiency drivers that it has nice top line and productivity benefits for
us. And then Michael on your question on reward structure. So I'm a big believer in you get what you measure, okay? So we actually just changed the reward structure for the leadership group that's on stage and all the key leaders in the company. We rolled it out a month ago.
And the core principle is line up the expectations of management with the expectations of shareholders. So everything needs to roll up to the drivers of value creation. So our short term incentive or bonus structure now has revenue, operating income, SG and A and there's a kicker on e commerce sales, quality digital commerce sales. So I have a qualitative override with the Board that if it's achieved through stuffing channels or dramatic discounts, that doesn't count, right? So that's short term.
So those are the drivers of TSR over time, right, operating TSR. Sales margin expansion, and then I'll get to cash in a second. The long term, so the LTI, the 3 year plan is ROIC, which gets to your point on cash utilization, capital, investments, inventory management, relative TSR, which is basically how we perform relative to our peer set. So completely correlated with kind of shareholder expectations. And then there is a time bound aspect to the reward structure as well.
But we really took the principle of what shareholders expecting from this company and how do we ensure the behavior of our leaders completely correlate to what ultimately you and the shareholders around this world on this company expect from us. So I actually feel really good about it. I think it's very tight, it's very clear, and it was actually very well received by the organization.
Janet Kloppenburg, JJK Research. I understand that digital is a
great
key part of your growth strategy. And I've always struggled with this, and Evan and I talk about it a lot, is to elevate the customer experience. I've always wondered how you think about presenting so many different brands under one platform. So you have a younger customer, you have a moderate customer, you have a better customer and you have a luxury customer. And you're talking to them all in one interface.
And I wondered with this replatforming that you talk about, if you address that or if you're comfortable with that experience. And when I think about all the influencers you're using for the younger set and how that might help or not help or actually diminish the engagement of the Luxury customer, I just wonder how you think about that and how you'll address that going forward as you expand your digital efforts globally. And for Jane, I just had a couple of questions. Number 1, the wholesale business sounds like it will contract a bit. Understandably, it's traditionally or historically been your highest margin business.
And I know you've probably shrunk some infrastructure there, but I wonder how we should think about the margins in the wholesale business going forward? And lastly, low single digit decline in revenues this year, fiscal 'nineteen, what is the step process to mid single digit revenue growth as we go to 2023? Should we expect a leap from low single digit to mid single digit in the 1st couple of years? Or will it be a more moderate pace? Thank you.
And congratulations on following us for 21 years, by the way. Okay. So your question is a really interesting branding one. It's actually a broader question than just digital, which is okay, how do we think about the brand portfolio? So we have one brand, Ralph Lauren.
And it's expressed through different sub brands that express different aspects of it with very specific consumer targets. So RRL does not appeal to the same consumer target as Polo or Lauren. So that's how we think about it. But fundamentally, we have one brand. It's the Ralph Lauren brand.
When it comes to how does this show up in different places, digital, in store and so on, we have a lot of conversations on that topic because that's actually a fascinating topic. Yes, but if you look at our Madison Avenue store, men's store and our women's store, we have a combination of several aspects of our brand. So at this point, we believe that a house of Ralph Lauren with different rooms, if I could use that kind of metaphor, is the more effective way to go and approach the consumer and make sure that there are some elements that are consistent across every touch points that are the Ralph Lauren elements. And then with a specific emphasis or approach by sub brand with the expectation that every sub brand needs to elevate, right? So you heard us talk about energizing and elevating the brand today.
It's very clear whether that's Lauren, whether that's Polo, whether that's even our luxury business that we need to elevate the experience and how we connect with consumers. Jonathan, not to put you on the spot again, but is there anything you want to add to how we think about our brands? And I guess Yes.
I mean, just building on the website, as you said, I think particularly digitally, I think the analogy of the house is right. But what we think about are the way that people shop. So there are some people that will come in and think, I want to buy Ralph Lauren, right? And they will come in and they will find the house of Ralph Lauren online. You can shop it that way.
It is segmented by brands and there's an experience around Purple Label, for example, which feels different to Polo or feels different to Lauren. But some people will come in and think I want a Polo shirt. And they'll come in through a different door and then they will get the polo shirts that we have assorted by price or assorted by color according to what they're looking for. And so there is a complexity. I hear what you're saying online, but we think we manage that pretty effectively underneath this umbrella of Ralph Lauren the brand and then specific sub brands that are targeted through world, through assortment and of course through price point at specific consumers.
Can I add to that? Sure.
It's a great question. Differentiating our brands, telling stories, creating a robust environment around each brand is something we need to increase. And we are investing in a big way in differentiating Lauren from collection. So that on the site, RRL will not feel like Polo. You will be immersed in that world.
But what I was describing in the app earlier is an example, while the ecosystem could exist in one place online, on ralphlauren.com, where you could choose to go to each world, perhaps Instagram now, there's a Lauren handle that sits separate from Collection, which launched just a few weeks ago. So you can see that momentum happening in social media where we're breaking it out. And then even now with an app, it will be dedicated to Polo. And if that works with Polo, then we may decide we should have an app for each brand. In the past, again, we were one of the first brands to have an app just for collection.
So I think you'll start to see each idea this is kind of a constant evolution. As each idea takes root, as we see it work or not work, we'll begin to evolve. And so over the next 3 years, I think some of the things you suggested and some of the ideas will start to inform the next idea. And if we could just stay awake and stay connected to the consumer, you're going to see that wherever we are right now, we'll evolve appropriately with what the consumer responds to.
Same products.
Yes. Just on the wholesale contraction comment. So the last time we disclosed our wholesale OI was it was about 25% in FY 'seventeen. So what we've seen over the last year or so, we've seen gross margin expansion in that channel for us and for our retailers. So really a win win there.
And I would expect to see, especially as wholesale recovers, I'd say we're not projecting total wholesale growth, again, including off price, in our algorithm. But as wholesale recovers from a trajectory point of view, then that margin that we reported in FY 'seventeen is durable into the future. And wholesale, while we talk about it as one channel, it's really very different. There is the full price bricks and mortar, which we do expect to have some secular changes as there are winners and losers. We are investing with who we believe are going to be the winners.
There is the.wholesale.com, great avenue of growth, great profitability there. And then there's off price, which we've made a strategic choice to pull back from. So there's a lot going on under that channel. But in terms of full price wholesale, we think that what we last disclosed was about right in terms of how you think about operating margin going forward.
Fineta said that better change thing.
And then sorry, did I just as we move from down low single digit in FY 'nineteen to growth rate that's mid single digit, I really view it as a laddered up approach year by year. Nothing turns on a dime. Would I love it too early, But the way we're thinking about it is things start to kick in. So early on, reenergizing the core, you're already starting to see that, right? Greater full price sell throughs that we've reported out in terms of our wholesale sell throughs.
Some of these nearing categories that Valerie talked about, denim and wear to work, we're already in them. We're and the consumer has said, please be in them. And so we view those as nearer term growth drivers as we move in. Some of the renovations that Jeff talked about and Howard talked about, those take place in FY 'nineteen. A lot of them take place and then add revenue as we move into FY 'twenty.
And then, of course, some categories that are further out, we'll start to build accessories, footwear, really getting in China a basis from which to grow really that high growth rate where we start to build the grace of digital commerce in China as well as the North America digital recovery this year. Those are the things that we've spent so much time to layer in to say how do they each add growth, how do we think about risks, how do we think about opportunities, but I would think about that's the sequential movement that you see underlying the growth.
Simeon, go ahead.
Simeon Siegel at Nomura Instinet. Thanks for all the detail guys. Jane or Patrice, you gave a lot of detail and segmented the sales growth and it was really helpful category, geography, etcetera. Can I ask for one more? So when you think about that incremental $1,000,000,000 is there any way to think about that in the context of units from new customers versus increased share of wallet from existing versus the price element?
And then David, if I can, the wearables and the customization sound interesting. Is there any way to give order of magnitude and scope, whether it's sales or percent of SKUs that, that could touch? Thank you.
So I would say that as we look at the $1,000,000,000 it breaks out in a number of different ways. And when we look at it from a product standpoint, we're getting about half from our core, half from those new categories. As I think about what's the driver in terms of units, this is a more AUR led plan than a unit based plan. Again, consistent with elevating the brand. So we have we know that they're the first consumers to come back that we've planned for are going to be consumers who are lapsed.
And then as you build out, our marketing takes hold, we start to build in layers of new consumers and the units from new consumers start to drive to that mid single digit growth over time. The leader starts with price, lapsed consumers, and then we start to layer in new consumers as we build our growth rate. And I think that that's the way the brand will work in terms of as we give people who love us a reason to reconsider and to purchase, and then we build awareness who people were not in their consideration set, we enter their consideration set, and that drives the out year growth.
Arne? Wait, wait.
We're not done.
David? Sorry, I just wanted I think you wanted me to respond to what's new for CYO in terms of percentage of sale and in terms of kind of cool new products and stuff. And I will say there's a lot of cool stuff coming, and we're going to keep trying new avenues. To give you an example, Wimbledon, which starts in about 3 weeks, which is a little scary, it's pretty cool. We have a mobile experience, which we're going to have in the U.
K. So driving around, you'll be able to shop on wheels. So the idea that you don't have to go to the store to create CYO. The store is going to change. That will lead us into how else can we bring products to you.
We know there's a lot of new products coming because it's our 50th. So we're going to be drafting off some of the limited editions by doing CYO versions of that. We're going to be drafting off of the interest in our archive. So we've really gone back with our designers and with our customers to identify some of the coolest product that people want to bring back, and we'll be doing customized versions of those, which have never been done. So we're evolving things that they know and like, but putting new spins on it is key and of course personalizing them and new products.
So I think that that's endless. We went from a polo shirt and now we're evolving into sweaters and sweatshirts and scarves and hats and all kinds of new products just this holiday alone. What we are seeing is that as we open these stores, whether it's in Hong Kong or just 2 weeks ago in Beverly Hills, we're seeing a significant portion of the sales are coming from CYO. It's just driving new customers in. As I mentioned, 70% of the customers that were shopping CYO had not been
in our stores. CYO is our internal code name.
Oh, yes, CREATOR OWN. We're finding that tremendous amount of those customers have not been into our stores. And a tremendous amount of customers who have been in our stores are choosing to go there. And what's cool is that when you buy one and you're not sure if you want purple or yellow, you tend to buy both. And it's a great way to buy a gift because you could say, oh, it's my son's sweet 16, my son is only 2, but when it's a sweet 16, you might buy for all of his friends.
And so we're seeing group sales, we're seeing tremendous lift in interest in the brand and just buzz around the brand.
And then on your quantification question on wearables, I think that was part of your question as well, right? It's hard to tell, I'll be honest to you, right? We got excited with wearables across this industry a few years ago, and a lot of it went just, right? Nothing happened. So we'll follow the consumer here, right?
And so I think what you and your team have been able to do with the self heating jacket, that's relevant. The consumer is telling us we're interested in that. How big will that be? We'll keep you posted every time we connect quarterly in terms. But we I mean, we're excited about making sure we're at the leading edge of what not what's cool, what's relevant for the consumer, and that's going to generate either heat for the brand or and income for the company.
So more to come in this space, but we have a lot of activities going on.
Right. Marni? Marni
Shapiro, the retail tracker. Jonathan, sorry to pick on your marketing, but you managed to get Jane to give you more money. So I'm curious if you can parse out a little bit where the additional spend is going to go. Is it more expensive to constantly create digital content for all the platforms? Are influencers exponentially more expensive?
None of the 2 combined more expensive than traditional media? And if you can also talk about where the spend is being weighed? Are you leaning more heavily into China and Asia where you're seeing more opportunity for growth? Or is it across the board?
Well, I guess there's 2 bits to that answer. The first would be we really follow the consumer here. So we know, as we've talked about, that we have a balance to strike between the consumer that we have, the 50,000,000 or so consumers that we have. And so we want to keep them engaged and excited, and I think that means more investment in really understanding what they want, how they shop with us, whether that's online, whether that's in store, and making sure they have more of what they want and using the new databases that we're building. So that's the first area of it.
As we think about acquisition, again, we think about where the consumer is, where they're spending time. We've done a lot of work to look at the profile of our media footprint right now versus the way that, that audience is spending their time. We saw that they weren't quite aligned. So we've made some shifts in favor of the consumer. We want to lead in digital.
We've talked about that. So many of those channels are digital, but it's a blend. If you think about that path to purchase and you think about the top to bottom that Patrice talked about, there's a number of different channels there. Really, the message is we want to go to the channels that matter most to the consumer that get them excited and inspired. I think the second bit, and your point about influencers and culture, it's really a modern form of media.
I don't think it's more or less expensive. I mean, in a way, I guess it depends on the influence that you're talking about. But the reach that they have isn't necessarily about scale. It's about relevance and it's about authenticity of voice. So what we're trying to do is balance people that have impact and scale in culture with people who have real intimacy and authority of voice with an audience.
So you'll see a balance there. I don't know that we can necessarily quantify that. And in the third area, just to keep using the phrase that Jeff uses, fishing where the fish are, you will see us, I think, start to invest more in the markets where growth will be more dynamic. But that's not to say that we forget those markets that are still full of consumers that shop us. So we'll see you'll see a balance there, I think.
Great. Brian?
Yes. Brian Tunic, Royal Bank of Canada. I guess two questions. One, curious about your change of philosophy regarding Amazon. What brought you to the conclusion that Chap should be the 1st brand?
And sort of what are you measuring to decide if the company shouldn't have more interaction with Amazon? And then the second question would be on your consumer survey work or the market share numbers you're giving us. Where do you think from a market share perspective you've lost share to? And in your customer survey work, what were some brands that surprised you guys that maybe your customers were talking about and you're maybe losing share to them? So just curious about that perspective.
So why don't I kick
it off and then we can jump in. Pure players and we've talked Amazon in every earnings call I've been on with all of you since I started. We're very clear on what our principles are relative to pure players and doesn't just apply to Amazon, it applies to every pure player that is an opportunity around the world. Principle number 1, we want to be we want to make sure we're able to showcase the brand in a way that is going to elevate the brand, not bring it down. Principle number 2 is we want to make sure that there is pricing integrity across the various channels and that the pure player isn't going to collapse the pricing, which will then have a broader impact on the overall ecosystem.
Principle number 3 is we want to make sure that counterfeits are being handled and taken care of and that there is smart management of 3rd party resale. And then principle number 4, which just completing what Jeff mentioned earlier, is really making sure that we're able to interact with the consumer and also learn and experiment. The CHAP's effort with Amazon is, as Jeff mentioned, I'll let you talk about it further, is in our mind a pilot where we believe as we look at these principles that basically the CHAPS fits these principles. As we look at these principles on other parts of the portfolio at this point, we don't believe that the sites is ready for other parts of our portfolio.
Not a whole lot to add to that. I think Petri shared the criteria. We think that it checks the boxes in terms of the way we are engaging with Amazon. We will be working to build a more robust sort of landing page and sort of brands, brand building, product description pages, etcetera. So we are really happy with that collaboration.
We are also going to be it will be really interesting to find out what works. I mean, we hear clearly from them and other pure play partners that you sort of have to see where the responses are and sort of build into that over time. So we're looking forward to taking an agile posture, if you will, as we roll that out. But we're keeping a close eye on anytime we can satisfy those criteria, whoever shows up, we're engaging in a robust way to make sure we're doing the right thing.
Then Brian, on the second part of your question regarding where did we lose share, who did we lose share to? So most of our business erosion has been in North America, right? You saw the numbers that Howard shared earlier. We've had a healthy Asian business for a couple of years now, and we've got the European business that we're feeling good about with significant growth potential. I mean, it's the usual suspects, right?
So you know the answer to that question as well as I do. We've lost businesses across all dimensions of our portfolio, whether that's luxury, Polo or Lauren. 2 thirds of those interventions are decisions that we made, right? So this isn't great work by competition, although I highly respect competition. But when we shut down a door or when we reduce our discounts, those are decisions that we make.
For the 3rd that is more relative to brand strength and that we're working on, it's the companies the usual suspects in this industry who are currently posting and have posted over the past few years strong results. So but as I look at the market, this is a huge market. So more than and anyone that's got any business here I mean, I come from Gillette, right? So Gillette, we had 95% market shares in Russia. This is not a market where we have where market share is that dominant for any significant player.
This is an incredibly fragmented category, which I think is actually terrific. That way there's room for everybody to win. And particularly in a category that's growing 3% to 5%, there's even more room for everybody to win. So actually, we don't spend that much time on competition, who did we lose share to, how we're going to get share back from competitor A or competitor B. We really focus on the consumer we want to get into the brand.
What is he looking for? What is she looking for? What has he or she not found in our brand over the past few years that we need to provide? And that's where we put all our energy, and we believe if we do that well, then that will take care of the competitive landscape.
Laurent? Good afternoon. Laurent Vasileski from Macquarie. A 2 part question here. First is on SG and A, the SG and A margin of 50%.
I think you called out marketing will be up to 5%. Can you talk a little bit about the puts and takes on depreciation expense, shipping and handling, other factors? And then on revenues, I think you called out denim and where to work are each $500,000,000 opportunities. Maybe you could talk about how what they are today and maybe where accessories is today and where it can go for 2023? Thank you.
I'll start on SG and A and then turn it over to you, Valerie. So SG and A, what do we expect over the next 5 years? We expect SG and A as a percentage of revenues to decline, right? That's how we've got to get a portion to reinvestment. And reinvestment is not only in marketing but also in our stores, which we I would expect that depreciation will start to trend up a little bit as we move through.
So where do we get accretion and the money to spend? Well, it's going to be from initiatives like the goods not for resale initiative and procurement that we're driving. We're going to get it through this end to end process and how do we take out inefficiency in the end to end processes. We've looked at our organization and our distribution footprint. Over the last 2 years, we've taken our distribution footprint down by square footage down by about 30%.
We think there's more opportunity there. And that was a part of the reason that we announced a very small restructuring initiative this year that we see we have some end to end process opportunities, some corporate facilities and other facilities opportunities and we still have some organization opportunities.
Products, so I described 5 opportunity, which is particularly denim, wear to work, outdoor accessories and shoes. I show you the work we are doing on denim and work to work because we have begun. We are already in the traction. We hope that this category will reach within probably 2023, dollars 500,000,000, dollars 500,000,000 each of the category, which means that we need to have a double digit CAGR on the 5 years, I mean, which is big. I think we don't want to give the impression as well that we're rushing on everything.
So I think immediately done in where to work out, where we go probably in the shorter term faster. We are building everything on accessories and shoes to have the right team creatively, the right team in development, the right distribution, the right marketing, but we will attack these 2 categories as well strongly in the 5 years ahead of us.
And I can
answer to your question.
Laurent, if you bring it back to the math in terms of, okay, dollars 1,000,000,000 of incremental sales over the next 5 years, dollars 500,000,000 on core, dollars 5,000,000 in underdeveloped categories, Think of it as roughly $100,000,000 potential in each of the 5 categories that Valerie talked about, right? So when we talk about each one is worth $500,000,000 the time frame goes beyond 2023 on some of them. For some of them, it is 2023. For others, it's further than that, but that's how we like to dimensionalize it because it feels substantive. But roughly over the time frame we've talked about today, which is next 5 years, think about an additional $100,000,000 across each one.
Rick?
Rick Patel from Needham and Company. Great presentation. I had a question on your plans for $500,000,000 of incremental digital sales. So can you provide some context on how much of that comes from your own dotcomversuswholesale.com? And as we think about that from a geographical perspective, you launched your new website in North America, it's doing terrific.
What do we think about the outlook for Europe? And then longer term, if you can touch on your plans for your own dotcom business in Asia? And putting all of that together as digital outperforms, how do we think about the impact on operating margins?
That's a lot of questions, Rick. So let's take them 1 by 1. Dollars 500,000,000 from digital, so it's going to be split across the four spaces we've talked about, our own site, departmentstore.com, pure players, right? In Europe, actually pure players is quite significant, and I'll hand it over to Harry in a second. And then digital commerce, which is nascent for us, but it's starting to be a relatively big space.
It's I'm not going to be able to give you specifics across these 4. I can tell you as the addition of these 4 get us to $500,000,000 And we're intent on driving all 4, recognizing we're going to pivot based on where the consumer actually wants to interact most. So it may very well be that over time, our own website is more focused on the brand building aspect of our model and that the commerce piece accelerates in digital in what do we call it?
Peer play.
Social commerce. There you go. Thank you, Alice. One of the reasons we brought Alice in, educate me. Social commerce like buying through WeChat, buying through Instagram, right?
And who knows, over time, maybe the consumer doesn't want to go to a website anymore, and the consumer is going to want to shop through social commerce. So we're clear on the sizes of the opportunity. We're confident that we can get to this number. How we get there across the 4 building blocks will vary by region and will vary over time. Again, in Europe, our pure players are quite developed.
In North America, our departmentstore.com is more developed. So that's I'd say the first thing. Our U. S. Website is not doing great yet, just so we're all in touch with the current reality.
So I'm happy to hear you say that. It does look great, and it's going to look even better. We've kind of gone through a cleanup year this past year, but we're quite encouraged, as we mentioned, I think, in the last earnings call by what we can deliver in fiscal year 'nineteen, getting that set back to growth. And then we're in the process, I think it's your question of days now, Howard, right, of kind of hitting the reset button in Europe. Go ahead.
I mean, in a few weeks' time, what you'll see on our own European websites is an iteration of what you're pleased with you say you're pleased with in the United States. So and I'd say in Europe, we see a lot of growth momentum coming from our partnership with Zalando, ASOS, Boost, YOOX, that's important. And we expect to see great results from the changes that we're making to our own websites there.
Just on the profitability side, Rick, I would say that all of our digital business starts with a great gross margin that's either in line or accretive to its what I would say, its normal channel margin. And in our pure plays and inwholesale. Com, the profitability is aligned. And then on our own e commerce site, the gross margin is healthy. Coming out of the reset that we did over the last year and change and we get back to growth, we've already placed that infrastructure.
So you'll start to see some leverage on that infrastructure, which should help profitability margin.
You want to talk Asia? You had a question. It was Asia was part of your question, right, Greg? Greg? Well, what we're doing there and how it's going?
Well, I mean, we've got
a presentation about the growth CAGR that we expect to see. We've got a fantastic representation with Tmall. I didn't cover it in the presentation. It was at the booth, but we launched recently on the Luxury Pavilion component of Tmall, which I think is a fantastic development. WeChat.
We are seeing outsized growth on WeChat. So I think you'll see strong CAGRs coming through in the China element. You asked about the breakdown between our own websites and partner websites basically. I don't want to overuse the expression, but when you think fish where the fish are, I'd go back to the 3 guiding principles. Yes, we've got to drive profitability and productivity, but we've got to elevate the brand, and we've got to keep the consumer at the center.
And I think in China, it may well make sense for us to have our own website, a dotcn. But there may be other markets in Asia when we think about Japan, South Korea, where we've really got to focus on where the consumer is going to work with us, where it's going to resonate the most. So that's not to say we wouldn't operate our own websites, but I think it's situational.
All right. Let's try to squeeze in 2 more. Dana? Dana Telsey Tag. As you think about your bricks and mortar channel, and obviously, you're making changes with the L.
A. Story, How do you think about the outlet channel? How does that evolve and how does that change going forward?
Hi, Dana. Jeff, do you
want to take that? Sure. So again, it goes back to this concept of an ecosystem and LA is our latest and greatest example of bringing that to life. But we think about that across the whole region. And we think that we have to hit the right balance of full price, brand building, full price stores, leveraging that imagery in our wholesale distribution.
And then, again, creating a great experience for a factory store customer. We know that the customer goes across all channels, but we also know there's a little bit of a factory store shopper as well. And they deserve a great Ralph Lauren brand experience, not the same one they're going to get elsewhere, but there as well. So given our experience in the refreshes we've done, we talked about over in the booth, we have done outside of Orlando, what we have done in Harriman, what we have just done outside of Houston, the refresh in LA that we are really satisfied with the productivity growth we get from investing in the existing fleet that we feel the best and nearest and highest return opportunity for us is to keep driving the AUR and the ticket and the productivity of the existing box. So we're really encouraged by the growth and the productivity we're seeing.
And Jane also mentioned a lot of the operational improvement we're driving, shifting replenishment times down from 12 days to 9 on the path to 4. So there's a lot of juice left in that orange, if I can misuse another analogy.
All right. One last one. Chetan, go ahead.
Chetan Noel of Barclays. I wanted to follow-up on the consumer survey information that you provided. I think the Gen X and millennial numbers that you gave were cut based on the number of customers. If we were to look at that on a dollar basis, does that look similar? Or do you see some differences in terms of per capita consumption across those different age ranges?
And then just a follow-up on the underpenetrated categories. How do you think about balancing investment to drive that top line versus your overall corporate margin targets? Thank you.
So the short answer to your first question is yes, consistency. Can you repeat your second question? I was so focused on
your first one that Just for the underpenetrated categories, how you balance investment versus the top line opportunity the context of your margin goals?
Go on. Go for it.
So when we look at the consumer survey, we're looking at 2 things is, who is asking to play in which categories? So for example, if you look at dunning, definitely it is a millennial is asking us to play in the category of denim. So we are looking at 2 things is what the consumer is saying we should play in first and who the consumer is asking us. And it's why the category will show to you whatever its accessory. I'm not talking about, for example, shoes, but sneakers is something obviously for millennials as well.
They are asking us to play and we have the right consumer. Wear to work, we want to capture women. Women is saying that she wants to buy from wear to work. I have a few of you who came to see me at lunch and say, I want to shop with you. Great.
Come. So the survey is telling us category, where they want us to play and who they are. And millennials and women have great requests in how we have to play in the category. And if you answer it to your question.
And I think to your the financial aspect of your question, the good news about the categories, these underdeveloped categories is they tend to be higher gross margin categories. So we have a good healthy starting point from a financial standpoint. And then we'll make sure we invest in the appropriate way to drive it while delivering the overall margin accretion that we have set ourselves from both gross margin and operating margin standpoint.
The 5 category are reach margin.
Great. I'll turn it back to Patrice for a few closing remarks.
Back to me, 3 p. M. Already, very good. Well, listen, I just want to take the next couple of minutes to kind of close out the day. It's hard to believe it's already over.
I want to start by acknowledging all of you for the time you spent with us, right? You've been here with us since 9 a. M. I know you've got a lot going on, lots going on in our industry and so on. So thank you.
Really, really appreciate the time you spent here. I started the day kind of with the 3 key questions that we believe are the fundamental questions for the company right now, and I think are the questions that are on your mind, right? And the 3 key questions were, okay, so how are you going to drive relevance across all the consumer touch points with Millennials, with Gen Zs? When are you going to get this company back to growth and globally and particularly in North America? And then 3 is, where is the value creation really going to come from over the next few years?
So I'm hoping that with the work that we shared today in terms of strategic framework, building blocks and the capabilities that we have in place that you leave clear and hopefully confident, as confident as we are that we have the game plan, we have the building blocks. And now obviously, it's all about outstanding execution because it's all theory until it hits the market. So we really want to make sure you're left here with perspective on that. And then we're going to be guided by the three principles that I think you've heard throughout the day. They're not complicated, but they're very important.
Consumer at the center of everything that we do. The U. S. Consumer, the Japanese consumer, the Italian consumer, right, really getting clear on the local consumer we're looking to serve, of course, the Chinese consumer among others. Elevating and energizing the brand, we're really clear that to win in today's market, we have to make our brand even more aspirational, which is why this company has been here for 50 years, even more exciting in a way that's true to who we are.
So we're not going to play another fashion brand scheme because if we do that, it might work for 6 months and then we'll fall apart. We're going to play our game, but in touch with reality, in touch with the changes that are needed today and in touch with what the consumer is expecting. And then our last principle is really balancing growth and productivity. This organization, I think, has done a tremendous job building momentum on productivity, being much more rigorous on leveraging its assets. You saw the numbers on lead times, on inventory, on SKU development.
We cannot lose that. So there wasn't, hey, we did a one time intervention and now we're back to the way we operated before. No. And I think your question, Michael, on incentive structure is really important here, right? So we are going to continue to fuel this momentum on productivity so we can drive margin expansion and invest in our business.
We're going to balance that with growth. And you heard Jane about talk about its quality growth, right? It's easy to grow the business in this category, right? We could stuff more business, stuff more in the off price channel, we could discount even further. We're not going to do that.
We're very clear on how we're going to build this company over the next few years, and we're doing it in a quality way, balancing quality growth and fueling the productivity that we momentum that we have. So that at the end of the day for you and all our investors, we're providing superior value, right? And our goal is that ultimately, the way all this plays out is we end up in the top quartile from a TSR standpoint within our peer group. So hopefully that was helpful and that was clear. I really appreciate all the time you spent with us.
We're now off to go ring the bell, right, Ralph and I with the leadership team. Thank you very much and we look forward to seeing you soon. Thank you.