All right. We're going to get started. Good morning, everyone. Welcome to our Investor Day. Thanks for joining us.
Let me cover a few logistics before we get started. So the presentations and the Q and A will take about 3 hours. We're going to take a break after about an hour and then a quick break again right before Q and A. And we'll have food and coffee the entire time in the room next door. And after the Q and A, we'll have a light lunch also in that room.
So we have some of the key members of our executive management team here in the front row. So please take the opportunity to introduce yourselves during the breaks and lunch to learn more about their specific areas. Moving on to the content. I hope everyone saw that we issued a press release this morning that includes our financial outlook. Also, the slides we'll be showing, they will be available for download on our website after the presentation is over.
And then one last thing, your favorite, is please note the forward looking statements. So with that, I'd like to welcome our President and CEO, Stefan Larsen, onto the stage.
Thank you. Thank you very much for joining us. It's actually we're soon to celebrate 50 years, and it's our 1st Investor Day ever. So you're part of making history. Let me start by saying that today is going to be about our way forward.
So I've spent a little over 6 months in the role. And what became really clear already at the dinner with Ralph, the first meeting I had with Ralph is that the strength of the brand that he has created and the team has created is incredible. And the way forward is our plan to build on that strength, further strengthen it and then match the business to perform closer to the strength of the brand. So today, we're going to speak about the brand and why we know it's really, really strong and how we're going to build the business to match the strength of the brand. In order to do that, we are going to go through a number of steps.
The first step is to ground us in where we are today, focus on the brand to start with. Then from the brand going into the challenge, because a big part of my time over the 1st 6 months has been to really understand in detail what are the challenges that have kept us away from reaching our full potential in terms of the business side. Sharing that, moving into the WayForward plan, and the WayForward plan is building on the strength of the brand, building on the knowledge, the detailed knowledge of the challenges that we are up against and ultimately ending in driving strong shareholder value. We will go through the business plan in detail, and then we'll go connect and segue into the financial plans. The business plan is directly tied to financial plan.
Then we go through some key takeaways, and then we'll open up for Q and A. So let me start with where we are today. I knew way, way before I had any idea that I was going to be here today with you in this role that the brand is really strong. So I grew up in a small town in Sweden, Scandinavia, Northern Europe. And I had an aspiration to buy a Polo jacket.
And eventually, I got to the place where I was able in business school, I run my own company to fund my studies, and I was able to not only fund my studies but to fund my first polar purchase. What's built the strength of the brand is Ralph's idea of a life in style and Ralph's idea about creating a life in style around his own life in style and his own family. And when I started to learn about the brand in-depth, these are some of the images that meant the most to me in terms of explaining what made the brand iconic. This is an image from the early years. And who in here can say that you can pull out an image from almost 50 years ago and you wear a sleeveless Down West with cowboy boots and still look good.
So what I see in this image is I see style, I see timeless style, I see quality, I see family, I see an aspirational life that I relate to. And I believe that that is some of the core that have built the brand to what it is today. When you look at this and when I started speaking on that first dinner with Ralph about the brand vision and the underlying idea behind the brand, it is about the life in style. And I asked Ralph, is it about your life in style? And he said, no, it's about getting everyone out there to connect with their own sense of style.
And it's about creating everybody has dreams, and it's about creating and editing a life in style that enables you to live your dream life. Even if these images are some of them are 40 years old, it's still I have a family, I have 3 kids, I'm married. I would like when I look at these images, this is how I look at my dream life. I want to spend time with my wife. I want to spend time with my kids.
I want to do it in a nice environment. And when you look at the clothes that Ralph and David and Andrew and Dylan and Ricky are wearing on these images, they are timeless and they are style icons. And Ralph has always had a way to put a twist to classic iconic style to make it interesting and exciting. Is this image from 40 years ago? Or is it from last year?
Or is it from this last Memorial Day weekend? Hard to say because it's timeless. It's iconic. The only way I can say it's not from this Memorial Day weekend is that I know that one of the boys there is David and David is over there. Looks different.
Again, it also follows all aspects of the life. So it follows walking on the beach during the weekend and it follows going out, special occasions, a weekend day with the kids. So something that started like that is now one of the strongest brands in the industry. Over the last 12 months, we have had 150 covers in some of the biggest and best fashion magazines in the world, 150 covers. We have had 3,000 editorials in the same magazines in just the last 12 months.
We have had 28,000,000,000 impressions. And finally, we have had close to $500,000,000 in estimated media value just by editorials. And that's a sign of strength when it comes to the brand. But when I came in, I wanted to know how strong is the brand from the eye of the consumer. So what we did in January is that we partnered up with Millward Brown, which is one of the most respected brand research companies out there.
And we asked the consumer, how strong is our brand versus the competitive set for the different brands? So I'm going to walk you through what we found, starting with men's luxury. The way Millward Brown is doing these studies, they're looking at power, perceived power and perceived premium. Perceived power is the consumers' expected market share, how they look at the brand in terms of expected market share. When it comes to premium, they look at to the degree which your brand's perceived equity supports its perceived pricing.
So men's luxury, we are perceived as 1 in power by the consumer and number 3 in premium. Women's luxury, we are perceived as number 1 in power and number 7 in premium. In premium, number 7 means right after Louis Vuitton. When you go to aspirational luxury, you go to Polo. Polo is really strong.
But this, again, what surprised me coming in, I knew the brand was strong, but I didn't know how strong. So asking the consumers about Polo and the competitive set, Polo is perceived as the number 1 in Power and number 1 in Premium. Comes to women's Lauren, our consumers look at Lauren as number 1 in power and number 1 in premium. So that's why the narrative today is the strength of the brand is incredible. The business performance hasn't matched up to that strength.
And we see a really clear path to tap into the business potential, massively improve it and drive brand strength growth and profitable sales growth. It will take time though, so I'll share the pacing. Another aspect when it comes to the brand is the elasticity. So I want to mention that because there are few brands who are as elastic as we with the consumer. We are beyond apparel.
So when Ralph had the idea to open a restaurant in New York City, everybody advised him to not do it. Everyone said don't open another restaurant in don't open a restaurant in New York. Nobody needs another there is nobody who needs another restaurant in New York. Well, Ralph's idea was if I open the right restaurant that I would like to go to, the type of restaurant that you have incredible service, but it lacks all pretension. So it's the kind of restaurant when you have gone out fine dining and you're driving the car home and you see your favorite burger place and you stop and then you eat the food that you really want, that's the kind of restaurant.
But he wanted his idea was to combine those 2. And then he did it against everybody's advice, and it's been an incredible success. We have 600 to 700 calls, individual calls every day for reservations. And that's another sign to me. When I'm at the restaurant any Tuesday and when I see the crowd in the restaurant, I see the direct reflection of the strength of the brand.
And I see the potential of getting that crowd to shop us when it comes to apparel, accessories, fragrance, watches, eyewear, home, footwear
and apparel.
We have another elasticity, which is the elasticity to go from entry to aspirational luxury to luxury. And few brands can do that well. And Ralph Lauren has done that from day 1. So we can grow with the consumer. You can start as an entry consumer to our brand and you can grow all the way to Luxury.
Sometimes I get a question about a life in style to say, well, how relevant is a life in style today? And sometimes when I ask Raf, tell me about the vision, tell me about what was the dream? Tell me about it because I want to learn so we can model out the way forward. And then sometimes he just says, well, Stefan, it was just a dream of being the star in my own movie. I said, Okay.
So 48 years ago, Ralph had the dream to be his star in his own movie. And today, is that relevant? Well, I don't know about your friends. All my friends are on Instagram. All my kids' friends are on Instagram.
The kids that we allow to be on Instagram, our kids are on Instagram. And what do they do? They are the stars in their own movie. So they project their life. And again, I don't know about your friends, but when I look at my friends' Instagram, they always project a better life.
So having 3 kids and working a lot, sometimes it's not a better life, but it's very seldom that hits Instagram. So there is this dream about projecting a life of style and looking all over Instagram, it's never been more relevant, a life in style. It's just that we have to evolve and make sure that we are as editors of a life and style, we have to cater to the life and style that people dream about today. These are some examples of that. So another thing that struck me when I had that first dinner with Ralph was that because he's an icon.
So and I wasn't a typical dinner partner for him, I assume. So I wonder how is he going to be? Is he going to be pretentious? Is he going to spend the whole dinner telling me about how everything is and how it works? And he just didn't.
So complete lack of attention. And we spoke the whole dinner about how do we take this vision and how do we build the company out for the future. So he was very much asking the type of questions that how can we move it forward? The next meeting I had with Raf, I also met David. And David's first question to me was in the process of getting the role, David's first question was, are you an entrepreneur?
Which is a highly unlikely question if you don't know the background, if you don't know what drove Ralph Lauren to be the iconic brand and the strong business it is today. So instead of me speaking more about the brand, I would like to invite Ralf on the station. I would like him to get the chance to share with you his vision, what it was starting out and how he has been able to stay as consistent as he has and what his thoughts are when it comes to the next phase. So Ralph, do you want to join me on stage?
I was just wearing. This is how it started when I got into the business. Close to 49 years ago, they were wearing narrow lapels, narrow ties. This narrow tie caused me to go into the business to make wide ties. So it's interesting because I didn't plan what I was going to say to you, but I just thought about saying, look at this, everything that I didn't like when I was 23, I like now when I'm older.
I've repeated to many, many of the people in my company over the years how I started. And by now, if anyone wants to leave that knows the story and heard it a 1000 times, I'm sure you but basically, I grew up in the Bronx. I was a kid. My father was an artist. He painted walls when he couldn't get the right job.
And we had 4 children with family. So it was a nice family. And I didn't know exactly what I was going to do. My father was an artist and I didn't have his talents. And so basically I went looking for a job and I got a job with a tie company.
And I was selling ties going out to Long Island, different areas and it was okay. And as I was in my offices and as I was watching the company work on designs, I started to look and see the designs that were coming out and I had ideas. I was a young guy. I was looking for newness and my friends were wearing different things. And I said to my bosses, I'd like to really do something with the ties.
I have some ideas. I'd like to make these white ties because I think they're really cool. And he said, Ralph, the world is not ready for you. And here I was a salesman, what my credentials were, they were not there. So I convinced another company to let me start a tie division.
And they gave me a draw in the Empire State Building. It wasn't really an office. It was literally a draw at the bottom. And that's where I kept all my folders and all my swatches. When someone came in, I'd say, come on, you want to take a look at my tires?
I'll show it to you. When I was there, I decided to start this division, called it Polo. Polo represented sports. I love sports, but I couldn't call it baseball. I couldn't call it basketball.
Polo was sort of sporty and international and that was my vision at the time. So basically I started this division and I shipped and packed the tires myself and walked around New York City with a bag and jeans and boots and tried to sell at stores. And funny enough, everyone started to like it. And Polo became a thing in the city and in around the areas. And when I went back, I all of a sudden decided that I could do more things.
And so I made these ties, delivered them, carried them, packed them and went to one of the great stores in New York City, Bloomingdale's. Bloomingdale's was the store in New York, Third Avenue was changing. It was modernized and just like Soho to all the other areas that we're seeing, they were changing. It was their moment And the excitement was in New York. The excitement was on Third Avenue.
The little boutiques were on Third Avenue. And so I went and the king of Third Avenue at that point was Bloomingdale. I went to Bloomingdale with my bags. I knew the buyer from my days of selling ties and don't forget I was only around 23 at this moment. And I took my tie to Bloomingdale's and showed it to them.
And the buyer was a nice guy and he said, I love your ties, Ralph, but they're a little too wide. My ties were 3.5 inches and the ties were this size 2.5 inches It's amazing that this 2.5 inches tie is what put me into the business. This one little thing and how men reacted to neckties at that point. Today they don't wear neckties hardly, but the world was very different. And so Bloomingdale said, I would like if you just put the Bloomingdale's label and narrow the ties, we'll buy you ties.
And I was really dying to sell Bloomingdale's. And I said to the buyer, I said, I'd really love to sell you, but I'm leaving because I'm not going to change it. I walked out of the store, I thought my legs would crumble because I can't believe that I walked and said no to Bloomingdale. That was 6 months later, they came back and said we can't find your ties anywhere. My ties were novelty.
They were unusual. They were wide. They were sophisticated. They were handmade. They couldn't find the combination.
But whatever it is, it's hard for me to explain it to you now, but I passed. I did not sell them. I said, I'm sorry, I can't sell you the tires. 6 months later, they came back. What that did for me as a young startup person was give me the confidence to say, wait a minute, they came back to me.
I believed in myself. I believe that I made the tie and I wasn't going to change it. Had I changed that tie, I would not be here today. Had I changed it and put a Sutton East label, I would have been called Sutton East, Ralph Sutton East. Guys are not smiling.
I thought I was funny. I'm trying to get a laugh. So basically the ties were very much my beginnings. I then realized that I could do more things. And basically when we saw the slides of how life was, I didn't go to fashion school.
I did not know what a designer was. So I was a kid coming out, loving things, shopping, walking into stores, just like a lot of young guys I knew and girls. And I had a vision. And I believe that I knew what people wanted and the stores were not doing it. So I then went on and started to make menswear, made shirts and they were unusual and Bloomingdale's put in the shirt counter and then I did decided to do ties and all of a sudden I had a shop.
I had a major shop in Bloomingdale's called Polo. And how it started, where it started, what the designs it, they were nice, they were handsome, but they were in tune with the times. They were special. The question I have on my business is fashion is relative to who thinks it's what's right. If you look at Cary Grant on television today or look at some of his old movies, people would say, I want to look just like that.
Well, I was one of those guys. I look more like Cary Grant now than I ever thought I could. But basically, if you look at Cary Grant, he's not wearing in fashion. He's not fashion. You want to know why we lasted is because we weren't in fashion.
We were leading fashion. We were creating what we loved and what we dreamed of. And as you can see young people today on the Internet, they're making their fashion. They want their style. They're saving their pictures on social media.
They're sending their whole things about look how I look, look where I was, look what my kids look like, look at the picture, look at my taste. So the world is changing. I believe the success of the company has been the knowledge and belief that we know what we're doing. Do you miss a year? Do you miss 2 years?
It's hard to say because it depends on the store. What Bloomingdale's carries is not necessarily what Macy's carries. Everyone wants what they think is in fashion. We are fashion. We're not in fashion.
We're not out of fashion. When they ask where are we? Who are we? Ralph is going to get back into fashion. That was not that's not necessarily all the issues that come about.
Yes, did we drop the ball? Did we make some things wrong? Absolutely. Am I happy about it? No.
But I believe in this company. I believe in the taste level. I believe that we have a handle on what style is and how to grow. 50 years in this business, tell me how many companies you've seen that are 50 years old. It started with nothing, 50 years in the fashion business covering men's, women's, children's, home, home.
Would you ever think we'd do home when I started with the necktie? Did you ever think that would happen? So it's hard to predict all the things would happen. The world moves and we move with it. The reason for home is that people that I knew were starting to pay attention to their home.
They had the shirts, they had the ties, they had some of the clothes, But now they had a baby and 2 babies. Now they want to invite friends over to their house. It's no longer we're going to go in the little club around the corner. It's where are we going? I was the same age group.
I was in the same group. I said, okay, yes, I want to get that couch from my house. Yes, I want to do that. I went to Bloomingdale's or Macy's with my wife one day and she was shopping for home furnishing. And she shows me these sheets and I picked up the sheets and I said, I'm not going to sleep on flowers.
I don't want that bed for myself. I want tweeds and I want something special. So I created plaid shirts. Out of my plaid shirts that I've done for men, I made sheets. I made prints out of the ties I made.
The ideas were flowing. The concept that we don't have to that home is only for the woman is not the answer. The home is for everybody, it's for the whole family. And kids can have great rooms and they can have the little high beds that they climb up and they can enjoy themselves. So where are we going as a company?
We are going into life. We are part of life. We are part of the children. We're part of the men, the women, the home, the restaurant. And it probably will be next time we speak and I hope it's soon, we'll be in more things, because this is about creativity, about life.
It's not that we make the new shirt, look at us, we had a shirt with 3 buttons. It's about living. It's about dreams. And everyone has a dream. It doesn't matter if you're in China or Russia.
I have been to China and Russia and I've seen all the dreams. And I watch Russian people come into my store and it's amazing. I feel that we represent America. When I was in Russia and I saw all the European designers and we had a beautiful shop right up front, I said, wow, I felt like the ambassador to America. So this meeting here is about what we're going to do, but we have always in 50 years, it's a pretty great record.
I'd like you to name any companies that have been in the fashion business for 50 years. And are we sleeping? While we sleep, do we need tweaking? Do we need to upgrade? Do we need to work on more things?
There's so many things above. I don't even know all the things that are going to happen, but they're going to happen. And just as I opened the restaurant, and I opened a restaurant in Paris, that was the first restaurant. So if you want to talk about committing suicide, open in Paris. And what do you have in Paris?
Ralph, you can open a store in Paris. Who needs a restaurant in Paris? Well, I walked out one day and I was with some of the people in my company and we said, let's get a hamburger. And I said, I'm in the mood for a hamburger. And I said, where can we go?
So we went to ask the concierge and he said, there's a great one around the corner. Anyway, we went to the concierge and I looked at what he said, he said, he said, go to this place and that place. And I went to these restaurants and they weren't the right hamburger. They weren't authentic. They weren't cool.
They weren't anything. They weren't what I thought an American hamburger should be better. Good or bad, that was my vision. Good or bad, the vision is when you get the hamburger, it goes with the style around the house. It's not just burgers.
It's what's the decor when you walk into this restaurant. What makes you different than anybody else? We have a home furnishings company. We have all the accoutrements. We work on movies in our company.
We work on stage sets. And we work on real clothes that people will keep and want to wear for years to come. And that's why we've been around 50 years. 50 years doesn't feel old. And believe me, I don't feel old.
And I'll tell you, when you get there in 30 years, you won't feel old either. I feel young. I feel excited. I'm excited about this company or else I would not be here. I own most of this company and doesn't mean that I don't work.
I work very hard. Stephane working with me is fantastic. I'm thrilled about it. And that's not just to sell Stephane because you know about Stephane's reputation. It's terrible.
Stephane is a unique guy and I don't want to tell him, I think you know the message about him. But basically this company is about people. And if you fall asleep and don't have the right people, you're not going to go anywhere. And I created a lot of things, but believe me, I didn't do it alone. I have a team of people that are fantastic.
They care. They love what they're doing. They're late at night. They're passionate. And passion is part of this business.
If you don't have the passion, if you're thinking of money all the time and numbers, you're never going to go anywhere. And if I was thinking about numbers all my life, I would never be here. I did the passion. I was passionate about what I was doing, both for design, both in enjoying it and also making a living for my family, because you've got to do business. And if we don't do business, we're nowhere.
So the business, the excitement, the passion, the people, that's what Polo is made about. That's what Ralph Lauren is about. And I hope over the last 50 years that I've said that and people have gotten that message, because I'm still here. Stephane?
We had an employee event and Ralph, I hope you excuse me for saying this, but Ralph is not much for rehearsing. And so we didn't rehearse that much, but we said I was going to queue up questions. And then Ralph said just before the meeting, Ralph said, make sure you queue up enough questions. And I queue up the first and then you spoke for a long time. So I feel like it's fascinating to every even though I've heard the Thai story so many times, I feel like it's fascinating.
RAS is the reason why I joined. I feel like it's one of the main strengths we have that we have an owner and a chairman who understands the creative parts of the business. Do you want to say a few words before we move on to the detailing out the way forward? But you and I had that dinner. You made me the CEO.
That was unique. First CEO I ever had. Yes. Well, I made you the CEO because I really believe that in looking forward, your sensibility about life. One of the things you said to me, I thought was fantastic, you said, I want greatness.
And greatness can mean a lot of different things to people, but I could see the passion. I feel when I was working and starting out with nothing, I felt as I was building my business and building my world, I love greatness. Greatness was challenging and doing something that hasn't been done before, reaching higher than you ever thought. Going from a tie to all the products we make today, 50 years later is amazing. I want to know how that's going to go 50 years.
And I you're the first person that I ever offered that to. And I've had great people in my company. I've had a great I over the years have wonderful people. And but whether they someone's going to carry the CEO flag was a different thing, because I'm entrusting my baby with him and with them. And that baby has to grow up.
And that baby is in front row, David on one hand and Stephane on the other. But in terms of where Stephane lives, I felt he had the background and the excitement and the energy and the knowledge that I don't have. I bought this company to a certain level and I understood everything that's going on. I don't understand all the things that were every day there's another thing that goes on social media, this thing, this thing and I can't keep up with it. And knowing that you can't keep up with it is pretty fair.
But knowing that you have someone right behind you, right next to you who understands a lot of the things, he's living through a different life than I lived through. Yes, he has 3 children. But I could see the stability, I could see the refinement, I could see the care, I see the love of his children, I saw the kindness and that's what I wanted to someone who's going to leave the company as long as he wants to leave it. And that's what we're looking forward. We're looking forward to the future.
We're not looking backwards. I've done a great job. I've designed my clothes. I'm not there not designing. I'm not there working.
I'm leaving late at night whether it's women's wear or children's wear. But I know Stephane is there right next to me and I have a guy with great energy and has vision that I don't have. When he started to do the research for to meet this meeting, you would not believe the kind of hours he put into and the kind of dedication and the kind of clarity that he demands. That is a unique man. So I am very proud of you, Zifan, and I'm very happy to be here with you.
And I'm very happy to call you me my whatever partners and I enjoy that and I hope that we all enjoy our time together.
Thank you, Ralph. It's a hard act to follow.
Take a quick stage step
break and then we move forward. And just thinking about what Ralph just said is something I haven't had I haven't been fortunate to be in a company that has been so creative. So in the companies I grew up in and grew, there were no Ralph Lauren's. So we didn't have that level of design. So we had to work extra hard on the underlying engines, so making sure that we in a more disciplined, more strategic way than anybody else found a way to create better and better products, better and better marketing and better and better profitable sales growth.
So the combination of having the strength of the brand and my experience of how to do it without that strength is part of what excites me. So let's start to move into the way forward. And you can't really start speaking about the way forward without speaking a little bit about the consumer. So I got a lot of question this morning with those of you who I met up with about where is the consumer going. And my perspective we all have perspectives.
My perspective is that the consumer is in charge. So the transformation of apparel, retail and the business at large has just begun. So what I mean with that the consumer is in charge is that there is an abundance of choice. And from product to marketing to shopping experience, the consumer is now in charge. So looking at my 9 year old daughter who is on YouTube, she looks at that's her way to look at TV commercials.
And she doesn't even think twice that if it's not entertaining and exciting to her, she just swipes it away. So when you're 9 years old today, you take for granted, what do you mean? I'm in charge. Of course, I'm in charge. I'm the consumer.
I have an abundance of choice. The distribution is I can get it whenever I want. I can get whatever I want. And that's true even if you live in a small town today. So versus when I grew up, I didn't have that choice.
So it's a huge shift that I believe we as an industry have to take really serious. And we have to do a better job. We have to do a better job to give the consumers something really exciting. And part of that is to move away from exciting today, it's not just a generic product and more and more discounting. Exciting is to create real value.
Real value is about a product that makes a real difference, that solves a need that you have, the want that you have. So my take is very simple. The consumer is in charge and we need to gear how we drive the business accordingly. Starting with the way forward, we have to recognize what Ralph recognized as well is that even though the brand is up here, the business has struggled over the last 3 years. And when I say struggled, we're still a very profitable and very strong financially strong business.
So we do business from a very strong base. But performance wise, the performance trend has been down over the last 3 years. So when I came in 6 months ago, what we did was that we assessed every value creating aspect of the business, the first one being brand, second one being product, third one being how we build assortment, 4th one being the supply chain, the marketing, the channels, the geographies, the consumer. Going into all of that is our team, our leadership, our culture, the way we do business and then we have the underlying cost structure. So we took and put a team together and went through and assessed every single part because what we needed to find out was why with a brand this strong, why has the performance been challenged.
So what we found, try to boil it down to 2 things. 1, we haven't been focused enough on what Ralph described as the core strength of what made the brand iconic. Secondly, we have been operating the business with a lack of quality of sales focus that have led to that we have had an excess inventory creation. Let me explain a little bit more in detail what we found. So when it comes to the core brand strength and the lack of focus on what made us really strong, first, we have diluted the focus on too many brands.
So 3 core brands accounts for the majority of both the brand strength and the performance, and we haven't put enough focus and resources on strengthening those. Secondly, we haven't focused on enough or we haven't evolved and we haven't evolved the core of what made us really strong and what the consumers love with us in terms of product, marketing and shopping experience. When it comes to product, we found something quite exciting when it comes to opportunity and getting at value creation. So this is an illustrative way of sharing what we found. So our classic iconic style, our core products are driving the vast majority of our business.
So when we plotted out and did the assessment and plotted out the performance per product, we saw an interesting pattern. We saw that iconic style was 5x in performance to the non core styles. And what we also found when we dug deeper was that we hadn't paid enough attention to that core style, the core style that Ralf was just talking about, that we have strayed away and created a far too long tail where we have by doing that we have diluted the focus on the core, gone off core and haven't spent enough time refining and evolving that core. Exciting part here is that the core is really strong. When it comes to marketing, marketing has been affected by the same challenge as the brand strategy at large.
So we have split the marketing in too many different initiatives. So we have had difficult time getting to cut through campaigns that have really moved the needle. We also need to evolve the brand voice. So speaking about the dream of a better life today, we have to make sure that we show up that our brand voice caters to the consumer's dream of a better life today. And that ties straight into what Ralph said is in being out in one thing that Ralph told me is early on, Ralph was 3 weeks every 6 months in Europe, was traveling all the time, was out walking in New York City.
As a team, we had to make sure that we are out as much as RAV was out. When it comes to the shopping experience, online experience is disappointing today. We don't show up strong enough in terms of being a flagship destination, and we don't have the functionality that makes it easy and convenient enough to shop. Thirdly, when it comes to the shopping experiences that we need to evolve the retail shopping experience. When it comes to the operating model that is driving too much excess inventory, it starts with 2 long lead times.
So today, we have 15 month lead time, and that creates a number of challenges for us. One being that we today have to plan and buy the assortment before we sell it the previous year's same season. So we plan on a plan instead of planning on what we actually performed. What that means is that we get a mismatch between demand and supply. And we have to buy today before we sell it into wholesale customers.
And that's one of the mismatches of supply and demand. If you see what has happened with our turns, they have gone down as an effect. So sales over the last 3 years is up 7%, inventory is up 26%. It's led to that e commerce wholesale retail, our full price channels have had an excess of inventory already starting out the season. And what that means is that that excess inventory drives up the drives down the sell throughs and drive up the promotional pressure.
And worse than that, it pushes inventory over to the value channels. Finally, when it comes to diagnosing our challenges, we have had an undisciplined and far too siloed approach to how we drive our channels. And that has lead to that the quality of sales in wholesale, e commerce, retail stores have gone down. It has led to this excess inventory growing the value channels out of balance and it has combined with that is that we have grown a retail channel in an undisciplined way and in a siloed way without looking at it from the consumer's perspective. So the consumer today looks at it as here is Ralph Lauren, the brand that I have a relationship with.
I want to be able to shop wholesale, e commerce and retail. And we have to do a better job building up our distribution with that in mind. So what this has led to is that we have an unsustainable sales and profit growth, and that's why you see the sales and profit growth declining over the last few years. We have had a weakening in the full price selling. And continuing with this vicious cycle, it is going to hurt the brand.
So going back to the strength of the brand, going back to knowing what we are up against, we built out the way forward plan. The WayForward plan, 1st of all, is built on our strengths. So the brand strength, number 1 very strong market share in the U. S. International business, Europe and Asia strengthening We have very strong financials, very strong cash generations.
We attract the best talent in the industry. There is not a single call I've made since I joined Ralph that hasn't been returned. And that ties back to the brand strength again. There is a strong internal support for transformation. We did one of our first employee surveys early in the year or right across the holiday.
And the company we did it with said, don't do it over the holiday because your team usually teams don't reply. We got the highest reply rate they have seen almost anywhere, even though we did it across the holiday. And the teams are saying what the consumer is saying. They're saying, we love the brand, we love Rounce vision, we need a clearer path forward because they recognize that we have been challenged from a business perspective. We love this brand, we want to win again, We need a clearer path forward.
So from an internal support standpoint, I feel the support every day. Then another strength is that we have the detailed way forward plan. So let's go through that. 2 main elements. First one is refocus on the core of what made us strong and iconic and evolve that core.
First is to refocus, second is to evolve it. I see it the way I've seen it because I've really turned every stone over the last 6 months is that we have all the cards, but we need to play the cards in a different way. That leads to evolving the operating model. We need to make sure that we operate this business in a way that drives sustainable profitable sales growth and that strengthens the brand doing it. So these two elements have to play together.
Within these elements, let's just start going through how we're going to refocus and evolve the core, evolving the brand strategy, evolve the product marketing and shopping experience. So when it comes to the brand strategy, it's quite simple. Ralph Lauren, Polo and Lauren accounts for the vast majority of the brand strength in the business, and we're going to put much more focus and resources on evolving those. The consumer is already loving it, loving them, and that has put our position in the market very, very strong. So we are going to put much more resources on that.
And as an effect, we're going to take the smaller brands and we're going to work with them to make sure that, one, that what we do in the smaller brands can feed into strengthening the overall Ralph Lauren company and overall Ralph Lauren, Polo and Lauren brands. 2nd, we're also going to increase the focus on ROI when it comes to our smaller initiatives. Again, I've never seen I've never worked in a company with more good ideas than the Ralf Flooring Corporation. We need to, on the business side, make sure that we take care of those ideas and that we make sure that they grow the core of what's going to make us successful in the future and as we do it with an increased discipline on return on investment. I wanted to show you this slide because it follows where the consumer is going because this is how we set up the operating model before, which is we have the RL iconic style in the middle, we build out the different brands and we go to market with that.
What we need to do is to go back to having the consumer in the middle. We need to increase the focus on getting close to the consumer and then build our offering around the consumer's life, which is in apparel, it's you have a casual side of your wardrobe, a work side, an evening side, a sports side, then you have the home side, etcetera. And then you build out the offering based on that. But it's going to be a very important message when it comes to driving the WayForward plan home. When it comes to building out our core products, we come back to the same graph that shows the strength of our iconic core products.
What we're going to do is that we're going to put much more focus and we have already started doing that. So in a short while, you'll hear a case study from Valerie Hermann, who has started working with this with women's collection. And what we do then is we evolve and expand based on who we are. Ralph often says, we either lead or we go home. And leading for us is iconic style.
It's iconic classic iconic style with a twist that makes it current. We're going to double down on that, and we are going to cut the unproductive long tail. When it comes to marketing, we're going to evolve our brand voice. We're going to develop and focus our campaigns to develop more cut through campaigns. By doing that, we're going to increase the ROI on our spend.
So we're going to make our marketing dollars work harder for us. And we're also going to improve our analytics because marketing today becomes increasingly analytical work in terms of not the creative part that comes out of your DNA and who you are. The analytics comes into how do you play the different channels in a way that you actually make a difference with the consumers' behavior. Part of the brand voice is to refresh social media, invigorate PR, expand partnerships. Again, the strength of the brand, we are constantly being approached by different people or brands from the outside that wants to collaborate with us because what we have built is so iconic.
So we are going to build on that. Shopping experience. First of all, we're going to strengthen the shopping experience in wholesale. Wholesale is going to continue to be super important for us. We're going to get back to winning in wholesale, and it's the number one priority.
So I might preempt some of the Q and A here, which is on wholesale, I believe that wholesale will stand strong if you look 5, 10 years ahead. What wholesale has to do as a channel is to become more exciting. And we will do our work to increase that excitement. But we are looking forward to partner up with our best partners and to create a way forward together. And we have already done some of that work.
And what surprised me really positively is all our big customers on the wholesale side are just waiting to be a part of co creating the way forward. We're going to build strength in e commerce, and we're going to evolve the retail shopping experience. So we're going to build strength in 3 channels. So before we go into how we're going to evolve then the underlying business engines and the operating model, I want to take the opportunity to welcome Valerie Hermann on stage, and she's going to show how what I just went through, how we are doing this in practice, right?
No pressure. Good morning, everyone. I'm very happy to be here today to share with you a very concrete illustration of what Stephane was describing as the strategy for assortment. And as you know, 1 year ago, we decided to merge Collection and Black Label. Why?
Because we wanted to have a more focused message to the consumer and as well to bid on our strengths. So let's talk about our strengths. What is our competitive advantages? Why the customer is voting for us? Why do they wait from RAFLORAD?
When you are close to the consumer, the answer are always the same: effortless elegance, quality, timeless, style. Style, we are the brand with style. But let me come back to fashion world, because I do believe that style has never been so strong and never been so relevant. You will see just in a second big pictures of people in the streets. Some are Editor in Chief of Fashion Magazine, some are actresses, some are just a girl next door.
They all have something in common. They are wearings in style, iconic style, jean jacket, navy blazer, tuxedo, white shirt. There are recent pictures. And it has always been in fashion, but more than ever, they were in fashion. There is just a little mistake on this page.
We are missing someone. And when we are looking at the navy blazer, we are missing Ralph Lauren. Navy blazer, I'm taking that example on purpose, because you will see in the assortment, it's very interesting to see how we did work on it and what's the result of the past season, because we have a very concrete result. So I'm talking about the last 6 months and the work which has been initiated 6 months, 1 year ago. So Navy Blazer, what we did on the Navy Blazer?
We wanted to build globally an assortment not only on the seasonal style, but as well on the iconic style of the brand. So working on a core assortment with, of course, behind an intention of better margin, better inventory, better focused message to the customer. So coming from the DNA, so I'm showing only probably 5 navy jackets on the 5,000 navy jackets that Ralph has produced in men, in women, in boys. So strong DNA, strong attitude, always like to have a navy blazer in a wardrobe. We look at the competition.
Why looking at the competition? Because we want to beat them. We want to be the best in class for fitting, quality, best colors, being the best, beat all of them on the different categories, not to copy them. Some of them sometimes have copied a little bit lifestyle of Ralph's Fit. We want it to beat all of them.
So we have a jacket, which is here, which is a Cadm jacket. The reason why I put that example and you will see just after, it's the number 2 best sellers of the last 6 months. Working with Ralph, working with the team, working and watching at what's happening outside, being as well working on a product that we are not just buying for 2 weeks, 2 months, but buying even on inventory for 1 year and thinking that the customers can keep these items years and be even happier to have the products like lasting and being beautiful year after year, that was the intention. So now let's come back to the season results. So you recognize the graph that Stephane was showing to you earlier.
Just season of the last 6 years, first, the collection did great, both revenue and margin. But more importantly, and to illustrate what Stephane was saying, 35% of our style are making 70% of our business, 35% of style, 70% of the business. Into 70% of the business, 60% Icon, which means that at the end of the season, 42% are made by Icon. 42% is making for 35% SKU style, we have 42% represent the revenue. Fantastic Icon product.
Why? No markdown, high margin, buying inventory for a longer lead time, very strong to the DNA. And on the 7 top sellers, 5 icons are top as best sellers. So on the first 7 top sellers, we have 5 icons. Why?
Because it's one of our strengths. We are well known for this iconic style. Now you would say 28% of the seasonal product. Why? Don't forget, we are working with movies.
Ralph have always talked about movies, the movies of the season, the newness. So it's just because it will be simplification to say, oh, just do the icon and that's it. We have a seasonal movie. The good news about the seasonal movie, which is bringing us brand equity, press, newness, we have potential icons. We have some products who are in addition for new icons.
You see that shirtdress, which is as well part of many products that Ralph have always created for women, it's the best sellers of the season. Sensing high margin because high sell through, the only beauty of that is you can have a potential future icon. It is that at the end of the season, it's in general in markdown, small markdown when the sales rate is high, they have still seasonal vision. So we have the 2 strengths, the iconic style, but as well as the vision, the movie of the season. So what about the non productive style?
Because it will be a simplification to say, okay, let's just cut completely the non productive style, which again, 65% of the assortment. So just to give you what we did on the first work 6 months ago, we have already dropped the 33% on number of style. And we are growing in revenue and in margin. We have already done that work of cutting the tail of the style. So should we cut everything?
No, because you need as well sometimes some style which are building brand equity, which are financially less productive, but making you dream that you come to or you have seen a very embroidered coat, very expensive that you come in the store because of that. You want to be part of the season, part of the movie. And at the end, you are buying a double breasted jacket or an accessory or curved shoes. That's part of the beauty of fashion. That in between the 65% we have nonproductive and what could be achieved with a better management of the inventory and as well a better message to the customer, the higher margin, there is a lot of things that we can achieve.
So what are we doing for the season coming? Of course, we are cutting apart as a non productive. So the target is again a strong double digit decrease of size, not because the target is only to decrease the number of style, because it's how we will work to have a clear message, the right margin and the right management of the inventory. We are still testing because as well what could be an addition for the next best in class for the icon style. I mean, we have to test and we have as well to reinvent and we have to surprise.
And we have a lot already of potential icons that we still want to surprise and it has always been the vision of ROG, surprise and surprise. So, same methodology, and I will finish by to talk about that on what we could do for the brand, because of course, I'm talking about Luxury Collection. As you know, I've been working now for 1 month on Polo Women and Lauren, same story. We find the same story. When you look at the numbers, 30% of the style are making 70% of the revenue.
So you can make you imagine what the potential we have in term of being more focused, being more core, managing the inventory, having higher margin. It's a fantastic opportunity. The best surprise for me as well was not only 30% making 70%, but in the 30%, most of the products are iconic. They are so strong linked with the DNA, with the style, with the iconic style that whilst has developed almost for 50 years now, 50 years. So example of Spring 2017 icons.
So we just worked recently and finished a new step on icons. So as you can see, it's very wide. What we can achieve, how we can tap Icon and Style, it's big because you could as well say to me, how long can you carry on doing Icon, yes, the bulk breasted jacket, the trench fit, it's huge. 50 years of living in style, 50 years of presenting a style icon to people. So it's huge in all the category, in all the brands, kids, women, men, huge.
So same work, working back to other icon, army jacket, biker jacket, chino, denim jacket, pea coat and definitively adding so much opportunity. So yes, opportunity to be stronger in the brand, opportunity to manage better the margin and to manage better the inventory. Now that said, we will go further because product is one part. I mean, to go to the customer and to the consumer with a clear message, you need as well to have the right marketing and the right shopping experience. So we are now working on a campaign on Icon, which has begun already 6 months ago, but pushing that forward and as well working on shopping experience, what the people can find in store, what are our most iconic style.
I'm extremely excited because I think we can push that for the other category and other brand in the company, and I wish that we can be with you soon to show how efficient and how strong it is for the customer, but as well for our financial results. Thank
you.
Hope you got a sense from Valerie that we are on this. So the way forward plan, one of the key principles is to simplify things and to go back to the core. And we are on it, and we're just going to continue to build out and reinvent the style icons and then, as Valerie said, connect the products with the marketing with the shopping experience and then doing that from being much more focused when it comes to the 3 brands that matters the most to our brand strength and our business performance. So before I'm really excited to get the chance to soon deep dive into the operating model, the underlying engines. But before that, we want to give you a quick break.
Evelyn, how many minutes? Okay. 10 to 15 minutes. Okay. Thank you.
Yes. I made a dream of many dreams, but how can they come true The way you wear your hat, the way your pity are to you, the memory of all that. No, no, they can't take that away from me, up. The way you hold your knife, the way we dance to sing. The way you change your life.
No, no, they can't take that away from me. No, they can't take that away from me. The way you hold your hat, the way you sip your tea. Till I always always keep the memory up. The way you hold your night, the way we dance to sleep.
Let me see a few. I'll let everyone take their seats. Hope you enjoyed some Ralph's coffee. It's really good coffee.
Okay.
So just before the break, Valerie went through and gave you examples on how we drive home the refocus and evolving the core when it comes to the brand, the products, the marketing, the shopping experience. What I'm excited about now is that now we're going to go to the underlying engines. And I've spent a lot of time there in my 18 year career, again, because I didn't have a Ralph Lauren as a partner. So we had to be very, very good at that. It's about three things.
It's about developing these engines. I'll go through. We are developing 4 underlying engines that will supercharge the consumer offering. We're also rightsizing the cost structure, and we are developing a disciplined economic model that I'm going to speak about perhaps the most important of all, which is the team and the leadership. So let's start.
So if you see the roof of this house, it's the consumer facing offering. It's the products, the marketing, the shopping experience, everything that the consumer sees. The underlying engines are what the consumer is not seeing, but that makes a big difference in driving sustainable, profitable sales growth and driving shareholder return. Four engines that we're going to focus on in the way forward, the first one being a systematic, repeatable way of building a stronger assortment. I spent many years of my 18 years refining that in different team settings.
Demand driven supply chain, the second engine. The third one is best in class sourcing. The fourth one is the multichannel distribution and expansion strategy. And all these 4 will interplay with each other and create value together. Then the foundation will be a disciplined economic model and a strong leadership team and an empowered team and an entrepreneurial culture to get it done.
Let's start with engines. So what do we mean with systematic repeatable way of building a stronger assortment? Well, in its most simple form, it's making sure that every single product in the assortment has an intent. And what I mean with that is that every product has to either be a test, it has to grow or it has to be optimized or it has to be reinvented or if it doesn't qualify to that, it's the long tail and it needs to leave, the assortment. So being very disciplined in having a language that where you build assortment season by season and you continuously strengthen it, you are very strategic on what are you testing, what are you growing, what icons are you optimizing and what of those icons do you have to reinvent.
And you reinvent through the testing. And I've seen firsthand in many different settings how this drives sustainable, profitable sales growth, comp sales growth based on making the assortment stronger and stronger. And this is then connected to the demand driven supply chain, and it's connected to the best in class sourcing. So let's move to the demand driven supply chain. We're going to, in the first step, cut lead times from 15 to 9 months.
We are going to introduce an 8 week test pipeline, and we're going to make sure that we start to plan inventory based on demand. So the whole idea is to sell more with less. I received a lot of questions around, so how is that possible? Well, it's possible through working differently. So the biggest driver here is to work differently.
The biggest driver is to go from a handover model where design, design, hands to merchandising, hands to sourcing, hands to marketing, hands to sales to creating cross functional teamwork where all the value creating parts of the team is there from idea all the way in. That's the number one driver. Number 2 is to stop thinking about it as if it's one lead time. It's not one lead time. The 15% to 9% is a very important change because the 15% to 9% brings us to a place where we can start to plan on what we actually sold.
So we plan a spring on what we sold that spring. But what you how we look at it is there are some things you need to commit 9 months out, and there are other things you need to commit 6 months out, 3 months out, and then we have a continuous test pipeline of 8 weeks where we continuously test products and see which of those work and then we grow those. What this means is that the excess inventory will be cut to as low of a levels as we possibly can. So that means that we will have less excess inventory and less discounting in our full price channels. It means that the transfers of inventory from full price to value channels are going to go down.
And it means that we are going to be able to become much more disciplined with how we distribute our products in the different channels. Sourcing is the 3rd engine. So we have the systematic repeatable way of building a stronger assortment. We connect the demand driven supply chain with much shorter lead times. Thirdly, we develop a best in class sourcing.
So I'm happy to have Halle de Alagoss here. She's over here. It's her 2nd day with the team. I'm happy to have her here. So she will, in not too far from now, be able to explain much more in detail than I do what the best in class sourcing model means.
But she has spent 18 years being one of the key engineers in her previous company to develop a best in class sourcing. A couple of highlights. One is to strengthen the collaboration with the supplier base. The suppliers are really advanced and have a lot of knowledge. We have to get even closer to them and leverage that knowledge.
They have to know the way forward plan. They have to know how we're going to get back to the core and then take its way forward. Secondly, we're going to develop fabric platforming and multistep buying. So it ties to not seeing the lead time as an absolute number by seeing the lead time broken down in a number of different steps. Fabric platforming is 1 that you platform fabric, which you know that you have for the icons and then you can deploy that fabric at a later stage and you increase flexibility.
Multi step buying means that you buy a portion of a product and then you buy again and again. So instead of making a big buy and take a big bet, we might split that into 4 different buys and therefore improving our accuracy when it comes to matching demand and supply. There is an overall focus in sourcing that needs to be to continuously drive down cost and drive up quality at the same time. And the collaboration with our partners, our suppliers will be key. And it's just something that we will start.
And every 3 months, every 6 months, we will find opportunities to drive quality up and cost down. Focus on innovation. Coming back to what Ralph said, you either lead or you go home. Innovation is extremely important for us. So innovation, how does innovation in Icon means?
Well, that could mean that there is iconic style in a fabric that is a technical fabric. Comes back, how do you develop the technical fabric? You get really close to the best suppliers of technical fabric in the world. One thing that I want to be very clear on is that a best in class sourcing is not all about speed. It's about optimizing quality, it's optimized price, it's about speed, but it's about flexibility.
So our best in class sourcing strategy that Halliday will lead the work will drive towards optimizing those 4. The 4th engine is to have a distribution and expansion strategy that matches how the consumer wants to shop us. So historically, when we look at our challenges, we have been too siloed. And the consumer shops across channels. So we have a Raft Flooring consumer in a geography.
And our expansion and distribution strategy will be multichannel towards that consumer. So if we take a region in the world, our strategy will work out where do we have our consumer, how does our consumer want to shop and from that develop the right strength in wholesale, online and retail. So that's going to be a big improvement, and that's also where we are going to bring in best in class knowledge. We are rightsizing our store portfolio. So one thing is what we have set out to do.
It's very clear. Where we are, part of the challenge was I mentioned that we have had an undisciplined retail expansion. What that means is that we have stores in the portfolio today that we have decided to close because of two reasons. They don't strengthen the brand and they don't drive profitable sales growth. How we're going to grow a profitable retail format going forward is going to be a part of the distribution and expansion plan.
And through the assessment work turning every stone, we see a really clear path to a profitable store format that can be scaled. But again, scaling and that's why Frederic Jarmus is coming in as Head of Expansion is because the scaling has to be done very, very disciplined when it comes to mapping out each geography in terms of location, discipline on size, different discipline on configuration, discipline on the financials. And once you have that discipline, you can scale a retail format with sustainable profitable growth. The foundation to these 4 underlying drivers are a cost structure that will be competitive. We haven't been competitive on the cost side.
We are taking some immediate action here, some significant immediate action to become competitive on the cost structure, starting with we are rightsizing the organization. We are not rightsizing the organization because of cost reasons. We are rightsizing the organization to empower our doers to be able to execute the way forward. So what we're doing is that we are taking the amount of layers down from, in average, 9 to 6. So there is no reason why we would need more than 6 layers between me and the actual doer doing the work to get the way forward plan done.
So we are rightsizing the organization to empower the doers to become closer to the consumer and get the speed in the decision making that follows through that. We're rightsizing the real estate portfolio. And as I mentioned, that means that we're closing around 50 stores that don't qualify to strengthening the brand or driving profitable sales growth. And we are continuously trimming all other SG and A costs. So going forward, year by year, SG and A as a percent of sales will go down.
That's the commitment from us as a management team. And it will go down because our focus will be to continuously learn and refine and find efficiencies. Continuously learn and refine and find efficiencies. We will increase our focus on ROI and we will invest with discipline. So everything we invest in, we will qualify it through does it strengthen the brand and does it drive profitable sales growth.
It has to drive both. So the team and the leadership team. So it starts with the leadership team. I'm excited that we are getting to a really strong leadership team that I have full confidence have the power to execute the way forward. Valerie was up here on stage.
She has an extensive experience from driving high performance in design and luxury. She was the head of CEO of Yves Saint Laurent and Head of Women's Ready to Wear at Christian Dior. I mentioned Halide, who is our Head of Global Sourcing. Frederic Jarmers comes in with 7 years' experience of driving high performance growth from H and M. We have Marcel Parrish here as well.
She is strengthening from eBay. She spent 4 years driving high profit growth for eBay Fashion and before that with Anthropologie. And we are continuing to strengthen the team. We will have the team in place very soon that have the ability to execute the way forward. What I can say is that we have 3 strategic hires coming in very soon that I can't give you the details on.
I can just say that when you see it and you have heard this presentation, it should make total sense that those 3 strategic hires are completely aligned to our ability to execute the way forward. The team. So we have a great team. We have a lot of great talent, some who have been with us from the beginning and some who just joined recently. It's our responsibility to empower them to do the best work they can do.
And the way we do that is we cut the layers, unnecessary layers, and we go back to an entrepreneurial culture. Because spending time coming into this company, I asked Ralph a lot of questions because I wanted to really know what were the drivers for getting the company to this strong of a position. One was working very entrepreneurial, working as a small company. And that is I have my whole career in family controlled companies, and I've seen that as a great advantage that when you work entrepreneurial, you get closer to consumer, you get faster, you learn, you continuously learn. One thing, one initiative that I had in my former role that I will introduce here that I have gradually started to introduce here is that we had a weekly learning session.
So the top 60 leaders we gathered every Tuesday and we went through. Last week, we set out to do this. The consumer responded in the following way: sometimes better, sometimes worse than expected. Why? What were the drivers?
We drove it home to what are the pieces of the plan? What did we learn from the consumers' behavior? And then we continuously tweaked and improved. We're doing the same here. So we started with the top 25 leaders every Thursday, and we're doing the same thing.
I'm a big believer in staying close to the business, having a clear plan and continuously learn and be focused and tweak and improve and improve and improve. Just as Raf described, being focused on standing for focused on what you stand for, not deviate, it's the same when I look at how to run the underlying business engines, being focused, focused, focused and continuously tweaked. So the WayForward plan built on refocus and evolve the core, evolve the operating model, we are going to do that through focusing in on the brands that really drives the majority of the brand strength and the performance. We're going to go back to the core in product marketing and shopping experience and take its way forward, evolve it. We're going to develop these 4 underlying engines.
We're going to rightsize the cost structure, and we're going to adopt the disciplined economic model. Truth is, we have already started. And we're going to continue to strengthen the team and empower the team to get this work done. Because I believe in just as the consumer is moving on, the employee of today thinks differently. There was a time where you could be a big company and you could be a few really smart people in the top doing the thinking and then having 20,000 people executing.
I don't believe that's going to be competitive. I believe in working like a small company, learning and having the team co create. So that will be a big initiative to unlock the potential we have in the team. We have a great team, and our job as a management team is to enable them to know where we are going, know what the focus is, stay clear on that and then continuously drive the learning. What this all drives to is it moves from a vicious cycle to a virtuous cycle.
So the focus on the core brands, the focus on the product, the focus on the marketing and shopping experience, optimizing the inventory to demand, strengthen the quality of sales, having a disciplined distribution and expansion strategy creates a virtuous cycle where we strengthen the brand and we drive profitable sales growth that is sustainable. So by that, I would like to segue into how this business plan connects with the financial plan. So I will ask Bob Mader, CFO, to join me on stage. Thank you, Stefan. Good morning, everybody.
So let's segue into the financial plan. This should already have or should already be clear for you that we are everything we do, all the initiatives we are driving are simple, straightforward ways of strengthening the brand, drive profitable sales growth. When we mean profitable what we mean with profitable sales growth is to drive sustainable sales, expand the margin and then from a share to ultimately drive to a strong shareholder return is also to be focused when it comes to returning excess cash to shareholders. The way forward plan that we went through in detail is all the initiatives are tied to a combination of brand strength, sales growth, operating margin expansion. And this is how we're going to start to execute this is that we're going to measure the sub drivers and we're going to make sure that when we refocus the brand and the product that it drives brand strength and we're going to measure that and that it drives sales growth and we're going to measure and follow-up and learn from that.
When we evolve the marketing, it's going to drive brand strength and it's going to drive traffic. When we evolve the shopping experience, starting with wholesale and e commerce, it's going to drive both brand strength and sales and have some margin impact. The systematic assortment creation is going to have a major impact on both sales growth and margin expansion. And again, having done this a number of times, I've seen both sales and margin expand based on the systematic repeatable way of building the assortment. When it comes to the underlying engines of cutting lead times, selling more with less, develop best in class sourcing, it's going to predominantly have an operating margin expansion effect.
But it's also going to drive sales growth because what we see is that due to the long lead times when we have to buy before we know what the wholesale customers are going to sell, we systematically buy too much of what the wholesale customers want to buy and too little of what they really want to buy. So just by getting from 15% to 9% and closer in and selling and buying in the right sequence, there is going to be a major opportunity to drive operating expansion and sales growth. When it comes to the global distribution strategy, it's going to drive brand strength because we are going to be maniacal on that. Every single channel is going to strengthen Ralph's original vision and is going to drive profitable sales growth. Finally, the disciplined cost management is going to be all about expanding the operating margin and being able to reinvest in initiatives that drives the way forward and give back cash to shareholders.
Phases. So this is a multiyear journey. David, Ralph, the Board is very clear. I'm completely aligned. We are going to do what it takes to drive this company back, not for the next quarter, but for multiple years of brand strength and profitable sales growth.
That means that we're going to have an evolution phase when we get this in place. Look at that as 2017 2018. And then we're going to segue into sustainable profitable sales growth. And at the end of this 4 year period, we aim at driving market share growth and having operating margins in the mid teens. 2017 2018 is a reset and stabilized when it comes to the top line.
Operating margin, given that the cost initiatives, we are it's more in our control and we have shorter lead times on those, we see that we can expand the margins and the EPS growth already in 2018. Sales wise, we pivot to growth from a much more profitable base in 2019, and then we start to take market share in 2020. Thank you, Stefan. So we have initiated and undertaken a number of cost actions in line with our plan to win strategy across the areas of organization, real estate and other expenses within the organization. Within the organization, all of these activities or actions either right sized the cost structure or simplifies the organization, and Stephane went into that in detail.
The two main actions that were part of some restructurings that we've done over the course of the last 2 years were within fiscal 2016, which was our global brand reorganization plan or restructuring. We reduced full time headcount by 5%, which resulted in approximately $90,000,000 of annualized savings. Within our FY 2017 restructuring charge that we've developed, we will execute to an 8% full price full time headcount reduction and also drive $150,000,000 of annualized expense reduction, driving really a total of $240,000,000 of run rate savings annually. In the area of real estate, as Stephane pointed out, our existing full price expansion has under delivered. And as a result, we undertook a very detailed portfolio review really identifying stores that didn't drive brand strength or profitable growth going forward.
And as a result, as part of our FY 2016 restructuring, we closed 43 stores and we've targeted within FY 'seventeen to close over 50 stores. These collective store closures will drive approximately $70,000,000 of annualized savings. Lastly, on other expenses. So as part of our fiscal year 2017 budget process, we targeted certain selling, certain marketing and certain specific SG and A expense categories for reduction. Those targeted reductions across those expenses resulted in a 14% or $135,000,000 cost reduction annually.
So all of these taken collectively are driving $445,000,000 worth of annualized run rate savings. So I'd like to provide not only a recap of our fiscal year 2016, but an overview of our fiscal year 2017 restructuring actions and activities. The actions related to our fiscal 2016 restructuring charge are substantially complete at this point. Just to refresh your memory, the actions were really the beginning of our rightsizing of the real estate portfolio and our cost structure, in addition to the implementation of our global brand organization structure. And that restructuring drove $150,000,000 of charges and approximately $125,000,000 of annualized savings.
Looking to our fiscal 2017 charge, it's really the continuation of the rightsizing of the organization, our overall cost structure and our real estate strategy at a much deeper and, I would say, more aggressive and substantive way. And we anticipate incurring up to $400,000,000 of charges associated with that and driving between $180,000,000 $220,000,000 of annualized savings. Now those final amounts are dependent upon the ultimate execution, whether it be timing or negotiation successful negotiation of exits from stores. Lastly, we anticipate incurring up to $150,000,000 worth of inventory charges associated with our reduction of inventory out of current channels. Stephane has talked a lot about the levels of excess that we've created, the levels of transfers that we've moved into our value chain.
We are significantly addressing this. We are not taking a Band Aid approach to this whatsoever. We realize it's not strengthening the brand and we're acting upon it in a very significant material way. The FY 2017 restructuring charges, some may flow into FY 2018, particularly around store closures depending on our ability to kind of execute in timing. Now turning to our financial outlook and guidance.
So for the Q1 of fiscal 2017, we anticipate revenue being mid single digit decline versus last year. And from an operating margin perspective, their operating margin will be down between 110 basis points 160 basis points versus last year and our tax rate 29%. For the full fiscal year, we're estimating a low double digit decline, our operating margin being approximately 10%, capital expenditures of approximately $375,000,000 tax rate annual tax rate of 29%, having buybacks of $20,000,000 and again the inventory write down of $150,000,000 that I pointed out earlier. Looking forward, for fiscal 2018, as Stephane mentioned, fiscal 2018 is very much a year in which we stabilize the top line. It's still partially a transitional year.
And when you look at operating margin, we're anticipating and expecting operating margin to improve. Looking forward to fiscal 2019, that's the year where we pivot to growth off a more profitable base. We see both gross margin and operating margin improvement. And then looking to fiscal 2020, we see we're capturing market share growth again and driving an operating profit that's in the mid teens level. Thank you, Bob.
My perspective on this when it comes to this year and the multiyear approach to the way forward is that we're of course not happy with this year. This is the best guidance we can give at this time. As a management team, our ambition is to deliver better than this. It will always be, but we will always guide in the most responsible way. And based on the facts we have, and we it became increasingly clear to us that in working through the assessment of the current state and crafting the way forward plan together with the board, we had to reset the inventory situation in order to get to a place where we have a sustainable model for driving our business that also strengthen our brand.
And it will, as you see here, it's very much aligned with the phasing. It is a multiyear approach where we will drive to do better than this at all times. Just one thing to add on the fiscal year 2017 guidance particularly on the top line. As I pointed out, we're taking very aggressive steps to reduce the level of inventory that's in the value channel. On top of that, we've got multiple initiatives around significant improvement on our quality of sale metrics, being less promotional, lower discount rates, driving higher AUR, all of those things are contributing to, I'll call it, a reset and a decrease in our top line, but all of which will position us for strength going forward.
Again, we're taking aggressive, aggressive steps to improve these things. Okay. So moving from guidance to an important page, which is what we will not do. So in driving the way forward and driving brand strength and profitable sales growth, we will not pursue short term results at the expense of long term results. We will not pursue growth or profits that are unsustainable or dilute the brand, the strong brand equity that we have.
We will not cannibalize sales with an undisciplined or siloed channel strategy. We will not invest without a clear return on investment hurdle and sharply defined payback. And we will not expand unprofitably. So this page is really important because it guides us as a management team what not to do and it strengthened the focus on what we have set out and committed to do. So turning to capital allocation.
The company has developed a capital allocation strategy and a more disciplined approach to managing both our internally generated capital but also our external capital. What that strategy provides for us is strategic flexibility, liquidity and access to significant levels of debt capacity should and if and when we need it. Within this strategy, our first priority is really the support of our key business initiatives and the way forward. This more disciplined approach to investing capital is really driving our investments and requiring them to produce returns that are meaningfully in excess of our cost of capital. Our second priority is our commitment to returning excess cash to shareholders through both dividends and share repurchases.
Over the last 3 years, we have returned to shareholders over 100% of our free cash flow. Looking forward to fiscal 2017, we anticipate managing those distribution and returns within the free cash flows that we generate that year, Really, so that it affords us the flexibility that I'm talking about to be able to execute and fund our strategic initiatives in the way forward, which is the reason why as we gave guidance for this fiscal year, our share repurchase levels are at the $200,000,000 level versus we've been averaging at about a $500,000,000 level for the last 3 years. Speaking about capital, I can just come back again and say that we will sharply increase the focus on return on investment. And part of the strength with the WayForward plan is that a lot of the big value creation initiatives don't require a lot of capital spend. And we will also be able to leverage the capital spend that we are finalizing right now, which is SAP and the online e commerce platform.
Those, I would add, coupled with pretty sizable significant cash outlays associated with the $400,000,000 restructuring charge that I mentioned also. Okay. Thanks, Bob. That's the end of the financial section. Sure, we come back to that in the Q and A.
Key takeaways, just before the Q and A, to share with you what we want you to walk away with from today's session. 1, we have an incredible, incredibly strong brand. What Ralph and the team has done has put us in a place where we have one of the strongest and most elastic brands in the industry. We have over the last 6 months diagnosed all the operating issues in the business. So we know exactly what has driven the underperformance over the last 3 years.
So based on the strength of the brand and the detailed knowledge of what has driven the challenges, we are executing our WayForward plan. And that's geared towards driving 3 outcomes: brand strength growth, profitable sales growth and strong shareholder return. We are rightsizing the cost structure today, so we are taking aggressive measurements to go after any cost that doesn't strengthen in the brand or drive profitable sales growth needs to leave the cost structure. And we are as you see an example on, we have already started that work. And we are combining that near term value creation with instilling a higher level of discipline in how we invest and how we spend the costs.
We're strengthening the team. We will have the power to execute this plan. It will take time. We are going to be as transparent as we can be with sharing the progress that we are making. We're going to start to see examples of how these initiatives start to drive value creation.
And even if there is a delay between when we see it and when you see it in bottom line, we'll share that with you. So we'll bring you on the journey and we commit to be as transparent as we can be. And again with the team, so what we're doing is that we're combining the strength of having a team with some of the best creatives in the industry with team members that we have brought in that have best in class knowledge in terms of getting these underlying engines going. And ultimately, we are doing this because, Ken, coming back to the dinner I had with Ralph, in when he shared about his future and where he wanted the next decades. And that's the commitment I made to Ralph to say, if I'm going to be your partner, I'm going to build I'm going to build a plan that will strengthen what you have built in terms of the brand and build from the core and take it way forward together with the team and then build a really strong underlying engine and by that build both the brand and the performance to a stronger place than ever before.
So those are the key takeaways. And just before we move to Q and A, we thought that it would be appropriate to give you a 2 minute break. 5. 5. So Evren just gave you 3 more minutes.
So us, 5 minutes let's try to make a quick leg stretch, be back in 5 minutes, and then we'll have an hour for Q and A. Thank you.
When we're out together dancing, cheering, cheering, cheering, cheering, cheering, kissing. I'm in heaven And the cares that hung around me through the week seemed to vanish like a gambler's buck history. When we're out together dancing, chin, chin, chin. Oh, I love to climb a mountain and to reach the highest peak, but it doesn't thrill me half as much as dancing cheeky cheeky. Oh, I'd love to go out
Started with Q and A. So, you guys know the drill. Please raise your hand. I'll call on you and please wait until we get you a mic so that the webcast participants can hear you. Okay.
Kate McShane, right here.
Where is Kate?
And if you could actually introduce yourself and your firm also, that would be great.
Thank you. Pulling up my questions here. I have a lot of notes. Kate McShane from Citi. Thanks for
your time today. It's been very helpful. I guess,
one a little bit more granular question with regards to fiscal year 2017. I think originally the guidance was for sales to be down, but operating margins to be up, which has changed a little bit. So could you just give us a little bit more color on what changed from the original assumption to now? How much were you anticipating sales to be down originally? And did that affect the operating margin guide?
Yes. So as we pointed out, we've taken very aggressive steps to really get rid of the excess inventory that we've been feeding into the value channel. So that's one of the biggest changes that occurred. On top of that, we've got 50 plus stores that we're closing this year. As I mentioned, we've gotten very aggressive with improvement of our quality of sale metrics, right?
Lower discount rates, lower level of promotions really cutting back. For instance, if there was a promotion that used to last a 10 day period of time, cutting it down to maybe 5, not going as deep in the markdowns, not really driving as many units as a result of that. In addition to proactively reducing our inventory receipts and in turn some of the distribution in some of the other channels. I mean those things taken collectively were really the biggest driver of the guidance for the full year versus before. We've, as Stephane said, spent the last 6 months since he's been here performing the deep dive within the current assessment and have really just completed the way forward plan.
And on the heels of that, that's what really drove the change. Now from an operating margin perspective, that level of decrease in sales drives pretty significant deleveraging of fixed expenses. On top of that, although our spend on our infrastructure projects has moderated, SAP and our e commerce platform, in fiscal 2017, the amount of expense versus capital is higher than the prior year because as you get to the tail end of completion of those projects, the run rate on those expenses tends to drive within expense versus capital. So that's another shift.
Matt, right there.
Sorry, one Kate, just to add to what Bob said was we also see a declining macro environment. So the macro environment has gotten tougher. So to reset and through this work that Bob described, we have realized we have come to realize that we need to take these measurements now to get the business right and drive profitable growth and shareholder return over time. And the combination of that led to us being more aggressive in rightsizing the business.
Matt Boss, JPMorgan. So does 2018 revenue stabilization and then 2019 market share growth, is it best to think about that equating to flat and positive revenue growth in those 2 years versus the down double digits this year? And then just as we think about the mid teens operating margin, what percentage of the mix should we think about retail versus wholesale by 2020?
So let's start with the first question, which is 2018. So it's a year of stabilization. That's how we can guide today. That's based on what we know today. And we will know more, and we will get back to you and share what we learn on the journey.
But as of now 2018 is stabilization 2019, I think you said 2019 was market share growth, but the way we guided was pivot to growth and then 2020 is market share growth. And that's based on the knowledge we have right now. But as I said previously, the as a management team, we are going to be maniacally focused on executing our plan and driving better performance, always better performance. And we're not being non committal or nonspecific. But as Stephane pointed out, one of the big next steps and not to put any pressure on Frederic, but is development of this holistic distribution strategy across the company.
Until we have that work done, I think it'd be unrealistic to give anything more specific than that because fiscal 2018 is still not as much as 2017, but it still represents a transformational period for the company. Some of these initiatives that Stephane went through have long lead times, particularly when you talk about the product development cycles and things like that. So that's why we've really guided the way we have.
Okay. In the back, Erin? Rosalie, right there.
Thanks. Good morning. Erin Murphy at Piper Jaffray. I was hoping you could talk a little bit more about your wholesale, what's embedded in the guidance for the next year. The last couple of years, particularly in the Americas, you've had a considerable amount of growth in doors.
So are you going to be pulling out of doors? Are you just reducing shipments into doors? And then what's contemplated in terms of the down double digit revenue? How much is actually coming from the wholesale specifically? Thanks.
So shipments are getting reduced into doors. Part of that is a function of prior season performance dictating current period or current seasons, reorders or orders from the customer in light of the macro environment, etcetera. And when you look at the guidance for FY 2017, you should be thinking about the wholesale channel being down low double digits for 2017 roughly. What yes, sorry, Erin?
Do you see that continuing into 2018? Are you going to be actually having to pull back on doors? I mean, I think you're like 7,700 doors or at least in the Americas. So will that number continue to shrink if you think about this as a multiyear transformation?
What we are going to do thanks, Aaron, for that question too is what we are going to do is we're going to partner up with our biggest customers. And they have already I saw them my 1st week in their own. They are long term relationships for us that we have built over years. They are eager to start getting back to high performance together with us. So they we they I saw them week 1.
They flagged we want to partner up with you. I was really clear saying we want to partner up with you. We want to get back to jointly high performance. And so the work that's happening now and over the next few months is the beginning of that deep dive that together looking at the way forward and saying how do we get as much value out of this in the wholesale channel together as partners. Because I got a question between breaks in between breaks as well about the wholesale channel.
And I'm bullish on the channel that there will be a wholesale channel thriving over the next 5 to 10 years. It's just about making sure that the model, the way we do business, strengthen the brand, gives the consumer a great experience, great product and that we sharpen up how we work with underlying engines because a lot of the engine work that we're going to do is going to be connected to their engines. But what's excited me a lot is that all our big customers have said, We are ready. Just let us know. They all want to be part of cutting lead times, buying in a different way, getting inventory down, increasing profitability.
So we're going to step by step go into deep dive period together with our customers. And when we learn more about where that leads and how fast we'll get traction, we share back what we know.
Michael, right there, Rosolie.
Michael Binetti with UBS. Thanks for taking the question. So I think a big thing that people in the room are probably trying to get comfortable with is the stabilization and your comfort with stabilization in 2018. When you look at how the revenue components are going to move into fiscal 2018, do you feel like the wholesale channel needs to shrink anymore? I guess Aaron asked a little bit, but do you feel like wholesale, there's a chance that chance that could have to shrink a little bit more and are you confident that you have enough of the retail business returning to growth that year to drive stabilization that year regardless of maybe some volatility in the wholesale?
It's just it's a little bit hard for people in this room based on what we've seen in the last few months to get comfortable that a lot of the big end markets that you're in in the wholesale channel will be stable in 2018 as well.
So thanks for the question. So what makes us confidence with what we know today to guide 2018 to stabilization is that we know enough. We have turned enough stones that we are in control of to say that when we execute that better for 2018 in terms of strengthening the products the way Valerie went through, improving the shopping experience, improving the lead times, improving the sourcing, we should be able to deliver stabilization for 2018. But again, we are learning. We're continuously learning.
And the more we learn, we're going to share with you. But that we feel confident today, yes. And I'll just add to that, improving the overall supply demand match. One of our bigger issues that we're tackling, is really elimination of that excess that we've historically created, right? So that's another key element.
So one is the excess. Another part is we miss out today due to buying before the wholesale customers have bought from us. We miss out on the upside on a lot of products. So with a shorter lead time, we should be much more accurate in getting the benefit of what they really want a lot from.
Okay. Jay, right in the front.
Hi. Thanks for a great presentation. Jay Sole, Morgan Stanley. My question is, talking about Europe and Asia, you talked about opportunities to grow and grow stores. Can you talk about the opportunity you see in those regions and also the store growth opportunity in those regions?
And then that's the first question. Thank you. Yes. Okay. Thanks, Jay.
Yes, so as I mentioned, we see the international business strengthening being stronger currently than the domestic business. We see great opportunity to grow in both Europe and Asia. Frederic Jammers, who sits over there, who's come in as Head of Expansion, Part of his work is to finalize the distribution strategy in the U. S. As step 1.
But in parallel, he's also working with the Head of Europe, who's sitting here and the Head of Asia, who's sitting here, to build a multichannel, multiyear expansion strategy. So I can't be more specific today than saying that we see big growth potential in Europe and we see big growth potential in Asia And we're going to grow. And why I'm especially bullish on that is because I know that through Frederic's work with our Head of Asia Howard Smith and our Head of Europe Geoff Waff and Ramdock we're going to get the best of the regional knowledge with the best practice knowledge in how to drive growth in a very disciplined and responsible way. So those 2 in combination makes me feel very confident that we are going to grow and in a way that strengthens the brand and drive profitable sales growth and continue to grow because we are already growing in Europe and Asia. And I'd just add to that to speak to the strength of the brand internationally.
We had recently increased prices and those prices price increases were well received across both Europe and Asia. And secondly, maybe as a test case, the Asian business had been out in front of really reviewing and looking to improve their quality of sale metrics. And we've seen a significant decrease in discount rate, almost 100%, significant improvement in gross profit rate, with slightly decrease in units but an overall increase in average unit retail. So we got an example of the strategy that works and the types of initiatives that we need to execute in the other regions and channels too.
Are you done? Okay. Lindsay?
Lindsay Druckerman from Goldman Sachs. You talked about improving the product, reducing excess inventory and a focused marketing strategy. As you think about your objective to strengthen the shopping experience in wholesale, are those the main pillars or is there more that you have to do in order to we know some of the challenges that the wholesale channel has been facing. Is there anything else that you plan to do specifically in store to improve that experience? Can you address the plan for outlet stores in North America as it seems you're sort of reinforcing your commitment to that here?
And then Bob, on the revenue guidance, talked about down low double digits for wholesale. Could you just tell us what the outlook is for retail and how we should be thinking about comp?
So let's see if we've got all the questions. So it was like 3, 4 questions, 2, 1. I wanted to do the last one first because I forgot the first one. Okay. Let's do the first one.
And let's go backwards. Yes. So you can look at retail guidance in mid to high single digit decrease level for fiscal 2017. So sorry, Lindsay, what was your 2, 3 questions before?
Strengthening the shopping experience in wholesale seems like a challenge in light of some of the traffic pressures and other issues that we're seeing happening in wholesale. You've outlined your plan for product, for reducing inventories and also sort of focusing the marketing message. I was curious if there were any other initiatives you had specifically on improving the shopping experience
at wholesale?
And then my
second question was on outlet stores in North America.
Okay. So let's try to start with the wholesale question because it's an important one. So you're absolutely right. The main drivers will be strengthen the products assortment, strengthen the marketing, getting the inventory rightsized, take away the pressure from the excess inventory. And 4th is going to be the work I described that we're going to do together with our partners to say when we are clearer upfront saying and aligned on this is the core that we are reinventing and building out and this is what's driving the most.
We are cutting the tail together with them. It's about presentation. It's about doors. It's about where we show up in each of the locations. So it's a detailed work when it comes to finding drivers that are connected to them and us finding them together.
But you're absolutely right about the main drivers are also going to improve department stores. And on your outlet question, the outlet channel has been plagued by a lot of the same product challenges that we've had across the company that Stephane talked about. We've had significant amount of excess inventory to be liquidated through there. We have to evolve that product, too. And a question we get a lot, and Lindsay, I'm not sure if you were insinuating this in your question at all, is are you over penetrated in outlet?
We have 168 outlets in North America in 140 centers. That's out of 2 25 centers that are available, right? So we're very selective where we choose to go. And when you look at our concentration of outlet or outlet presence relative to a lot of our competitors, you've got Tommy that has 204 outlet locations, you've got Nike at 185, you've got Under Armour at about 150, Calvin's up there too, that we actually feel that we're penetrated appropriately within the outlet channel. And when you look to our international markets, we have about 58 locations in Europe and about 48 in Asia.
There's still a lot of white space there, not only for full price retail expansion, but as you do that, continuing to expand in the white space for outlet too.
Janice?
Janet Kloppenburg, JJK Research. A couple of questions for Stefan. I wondered where you were in the calendar process from shrinking the lead times from 15 to 9 because that process is pretty dynamic. And if you were at 15, you'd be planning next fall right now. So when will we see that become effective?
And also wondered about the profiling of the brand and, how much you talk to the millennial customer, what the brand means to that specific target market, how important that is to you? And Bob, I was just wondering, a lot of your luxury counterparts have gone through a pretty weathering experience of price harmonization globally, given that price is pretty visible, now across many markets. And I'm wondering if that is something that you're working on or if you don't think it's necessary. Thank you.
So let's try to address them in order. Your question, Janice. So the first one, if I heard it correctly, was about how fast can we implement the shorter lead times? Yes, yes. So we have already started.
The teams are already working. It will be intensified now when Holiday is in place since 2 days back. So we'll have to give her a few months to work together with the teams who are already working through to shorten it. So it will be a gradual approach. It will have a gradual effect.
The approach is not gradual. The approach is to go after it as fast as we can responsibly. And then the effect of it will come gradually. So you have to give us another or please give us another 2 months, and we'll be able to come back with holiday support to say how much of an impact will we get when. But we're already starting working on it, and we can still influence because we are trying to influence trying to do some quick wins to get the lead times down so we can still influence some of spring 2017, and then we'll get more effect in summer and even more, in fact, for fall.
So but that's how detailed as I can guide that work now. The second question was the millennials, yes. So when you look at the consumer, another thing that is happening is that the millennials are soon outpacing the baby boomers. So we are taking that really serious in getting back to the core of what we stand for and then evolving our brand voice. So that brand voice will be evolved in the marketing, in the external marketing.
And the external marketing will be seen more because we will focus resources on cut through initiatives. But then also when it comes to all aspects, all consumer touch points, including social media, PR, In all those aspects, we will make sure that we evolve the brand voice through going back to the core and then saying how is how do we make sure that that's relevant for the millennial. And on your question on pricing harmonization, that was one of the many areas that we looked at as part of the current assessment in the business. And as part of our FY 2017 budget and one of the reasons for the guidance being where it is out of the many that we mentioned is we have harmonized pricing in North America. We were actually we found we were competing against ourselves in channels within the same region, right?
So factoring that in has actually driven down sales in a few of our channels where we may have been undercutting pricing in the other channels. And by bringing it up, we're going to be moving less or fewer units. Pricing harmonization is a little harder internationally because when you're importing goods, customs, duties, importation rates add to the overall landed cost. We definitely look at it across key items. In particular, I'm not sure I think there's going to need to be more work on that.
I'm not sure that you'll ever get to global price harmonization. And I think when you hear about other retailers doing it, they may do it on one style, 2 styles. They're not doing it across their entire product assortment. One aspect, one addition to what Bob just went through, which is the silo. So he mentioned that we have been working too siloed on the business side.
So what we're doing, one action that we have already taken is that the bonus structure for the top leaders used to be siloed. And now we are bonusing everybody on the corporate goals that then tied to the corporate guidance. So we are in one boat, one set of common goals. I'm such a big believer in one vision, one plan, one set of goals and then working really disciplined in learning and continuously improving and always trying to deliver better than what you set out. But the incentive structure will definitely help us.
It's just one common goal, strengthen the brand and drive profitable sales growth. So if we have been misaligned in channels, now the channels will come together because they have the same goal.
Laurent? Rosalie right here in the front, Rosalie.
Thank you for taking my question. Laurent Vasilescu from Macquarie. I wanted to follow-up on the sourcing presentation. In the past, the company has spoken about sourcing from 700 factories globally. With the SKU rationalization effort underway, where can the factory count go?
Can it increase your sourcing power? And then ultimately, where do gross margins go over the next few years due to these initiatives?
So all really good questions that we are working through. And as I said, HALID is number 2 day on the second day at work. So what's going to be important here is that over the next few months, holiday together with our really competent team is holiday brings in the best in class knowledge together with a really strong team assessing the full sourcing strategy to saying from where we are today to a best in class strategy, what does that mean? And then again, I'm a believer in modeling out simple steps to drive the outcomes that we have set out. So that one part of that will be the supplier base.
But we need to give her a few months to do that work to be able to share with you exactly how our approach is. But I know how it does approach already from the beginning on an overall level, which is to collaborate really closely with the suppliers. And I also have experience from that in from my 2 previous jobs to the more your supplier knows what you have set out to do and they understand your outcomes and they align to that, they can create a lot of value that will fall back to improved gross margin. So with gross margin, gross margin and so in our guidance we guided to gross margin improvement in fiscal 2019. So that's when we expect to see that come through.
Okay. David?
David Glick from Buckingham Research Group. You guys laid out a very detailed picture today in terms of the brand product marketing cost savings initiatives. What's less clear when you get to FY 2019 is what the growth drivers are going to be. In the past, it's been very clear what those growth drivers were right or wrong. But from a channel geography category perspective, have the growth drivers changed?
Will they be the same? Are you still developing that vision?
We're still developing the vision. So part of it is to develop the multichannel global distribution and expansion plan, plan. Part is that work, part is also the brands work in looking at the categories where we are strong, how do we strengthen our presence there. That's another thing that didn't make it to the presentation, but I'm happy to share here, which is exciting to me in terms of potential growth opportunities. So if you look at, we are ranked number 1 and 1 for Polo and Lauren as an example from a consumer's perspective, brand strength.
And when you look at the assortment, we are dominating in a few categories and we have a lot of growth opportunities. Let's say, that we dominate in 2 to 3 categories per brand. But if you look at how the consumer builds their wardrobe, there are an additional 3 to 4 categories where we have a big opportunity to grow. So what makes me excited is that we have this strength with the consumers since years back on several core categories, and then we can build out from that core into other categories because Valerie showed we have the iconic style in those categories as well. We just for some reason, the business has been very skewed towards a few categories.
And that the upside for us and to drive profitable sales growth is that we have categories that we haven't yet tapped into fully. And the one thing I'd add to that is, as you look out into future years, that our overall growth will be retail led and that we've got a significant market share in North America. There's still opportunity to grow that. But having said that, when you look at our international markets, there isn't much of a wholesale presence. And our growth in international will be led by retail.
Do you have a follow-up, David?
Can you?
And a quick follow-up on the promotional and pricing strategy. Clearly, you're going to reduce the promotional strategy whether it's wholesale retail. How do you think about the initial retails of the product you have at market? Obviously, you're discounting off of those retails. Is part of your strategy to rethink where your prices are set in the marketplace?
And I'm thinking more in Polo and the wholesale business. Thanks.
Thank you. As of now, we feel good with the prices we have. What we see when we are digging in under the covers, we see that the excess inventories has driven a lot of the unhealthy promotions. So we're going to work with our partners to in step 1 get the inventory levels down, increase the healthy sales and then gradually responsibly step out of excess promotions.
Bob
Drbulin, Nomura Securities. With regard to expense discipline throughout the organization, there's a renewed focus on it, commitment to it. Can you talk a little bit about how that has been received within the organization and willingness to be a little bit more rigid with some of those initiatives?
Well, it was another surprise. Sometimes I get the question in a different way saying what surprised me the most coming in. Well, what surprised me the most is the receptiveness with the team and the to think differently to get back to high performance. Everybody is here because they love what Ralph's vision is and they want to bring that into the future. And they're very open to looking at different ways of doing that.
So as So I feel like that is something that doing that much, much more frequent on an ongoing basis is going to make our teams co create and say, hey, we're spending cost here and it's not strengthening the brand and it's not driving profitable sales growth, it needs to get out in order for us to drive profitable sales growth, invest in what drives that and drive strong shareholder returns because when the stock price goes up, everybody walks a little bit taller. So the willingness to win, and that's something that we spoke about, Ralph and I, on the first dinner as well is I was impressed by Ralf's focus on like I want to win. I don't want to keep doing things if it doesn't lead to winning. So there is a spirit also through the employee survey that came out, which is we are ready to roll up our sleeves. Just give us the direction, give us the plan, take away excessive layers and empower us to do the right things.
So I'm excited by how the team is responding to this.
Rick, right there.
Thank you. Rick Patel from Stephens. So you talked about developing a higher performing store model and then being able to scale that. Have you identified what that model looks like today? Or is that still a work in progress?
And is there any way to frame what the opportunity might look like either by brand or by geography?
Thank you. It's a good question. Well, we are right in the beginning of we have some insights. We don't have insights enough to share exactly concretely what it looks like. But we have enough insights to make me confident that through Frederic's work that we know what the components need to be in order for the store model to not only strengthen the brand but drive profitable sales growth.
So we know directionally what we need to do. We have a few months of work before we can be explicit in terms of how we share it.
You also talked about e commerce, the desire to be much stronger in that channel. Can you update everyone on where you stand with replatforming and whether you're going to be accelerating those efforts on a global level?
Yes. So we have the replatform going, and I'm very happy to have Marcel as the Head of E Commerce. You have 3 replatforms behind you. Yes, so Marcellus driven 3 replatforming, successfully landed them. And that technology will enable us to create a better shopping experience and improve the functionality because it's my experience from driving high performance in e commerce is that you have to always find that balance between being exciting and sharing inspiration with being very convenient.
So the consumer wants to be more excited than ever before, but don't waste my time. Make it convenient for me. So that balance, again, we know which components we need to build, and the platform will enable that.
Okay. John Kernan.
Hi, thanks. John Kernan from Cowen. Just to follow-up on the e commerce question. 1 of your biggest competitors in North America is now directly selling inventory to Amazon. Have you studied that channel?
Is it brand appropriate? And then my second question is within the retail segment, it's been the biggest driver of the decline in profitability for the total company. So how do you fix that? What type of lift in productivity do you need? And what are you assuming in terms of the retail profitability that drives all that improvement?
Thanks.
Okay. So starting with the first question was about Amazon. Yes. Yes. Okay.
So the way I approach it is we go back to the work we're doing the multichannel distribution and expansion strategy. We are in the works with that. So I can't give you more details now than that we are in the it's in the works, and within the next few months, we'll land it. We'll land it in a way that I want to get close to the consumer. So one of the inputs that I have for Fredrick's job is to make sure that we stay close to the consumer, make sure that we can tell our story, make sure that we do more than selling a shirt, back to what Ralph said, that we can inspire the consumer to a life in style and A, do that B, that we get we have the knowledge of how the consumer shops and what they want, and we can develop different services based on that, and we can develop the distribution based on that.
So that's my take on it today. The second question was the retail stores. It's in it's the same work stream in terms of the multichannel distribution and expansion plan. And again, we see the main drivers for expanding a retail format that drives brand strength and profitable sales growth, we just need time to work through how to best do that in a multichannel approach because some of the challenges within the retail expansion has been that it was made too much in isolation from the other channels. The one other thing I would add to that though is really the benefits or the benefits associated with the restructuring activities, right?
We're closing almost 100 stores over a 2 year period of time. So we've selected the stores that aren't driving profitable sales growth, aren't strengthening the brand. Eliminating that from the overall portfolio and population goes a very significant way to improve the retail profitability, too.
Okay. Dana Telsey?
Dana Telsey, TAG. As you think about the different channels of distribution, how do you see the value channel or the off price channel playing into this the new paradigm? And then on your retail business, where the growth is going to come from, is there a number of stores that you look to, both domestically in North America and overseas? Thank you.
So first question, Dana, first question was off price and value. So the way I look at it, I want to bring it back. I don't know if you recall the slide with the brand elasticity that I see it as a strength that we go from entry to aspirational luxury to luxury. So as an example, when I went to school, I had to work hard to get into the brand. And then today, I'm in a purple label suit, and Ralph Lauren has followed me through my life.
So I believe that rightly played, that's a great strength of ours. What we have to do, coming back to the value channels, is that we have to keep them in balance. So we have to make sure that we are disciplined in the inventory buys, so we don't flow full price products into value channels because then the vicious cycle starts. So that's why we are resetting this year. That's a big reason why we're resetting this year.
But we believe it's a strength to be entry, aspirational luxury and ultimate luxury, which is the best of the best. On the retail expansion question, Stefan, I think, answered it generally before. Frederic and the team need to really kind of do the holistic distribution strategy. We've generally put a pause for now on expansion of full price retail stores until we do that work. We refine the model, we test it, it's proven and then you can go and implement that on an accelerated basis.
Any of the full any full price stores that are included in our budget store count this year are really stores that were committed before we came up with the WayForward plan. And it's a very small number. A lot of the store count growth is half of it is outlet. And of that half outlet growth, it's a function of swapping out stores. We're closing almost as many outlet stores as we're opening and reshuffling the portfolio as far as locations.
Okay. Carina?
Hi. Thank you. Carina Friedman from BB and T. You've indicated that you're going to focus on the 3 core Ralph brands. What are the fate of the remaining non core brands, be it further consolidation or potentially monetization?
You. Well, I think I shared with some of you during one of the breaks that coming into Ralph Lauren, another thing I learned is that when most companies have 90% operations and 10% good ideas, so lack of good ideas, almost all big companies, my experience lack good ideas. I come into this big company and there is an abundance of good ideas. What we need to do is to be really disciplined in how to handle those good ideas. So our responsibility is to look at the small brands and help them to be relevant in strengthening the overall brand vision that is Ralph's original brand vision and sharpen up the focus on return on investment to make sure that every initiative we do that it strengthens the brand and contributes to drive profitable sales growth.
Okay. Chris?
Hi, Chris Verstes here from Susquehanna. Just one question. Just when we think about the margin profile going from 10% operating margin to mid teens, which I assume is 13% or better. Can you just maybe just talk about the parameters between gross margin and SG and A? You've thrown out a couple of things, made some comments that you want to be able to leverage SG and A as you move forward, I guess, out of 2017.
But just maybe to get to that 300 basis point ish level, just maybe what's the gross margin equation to that? What's the SG and A component to that to make up that delta?
What we can guide on today is what we have guided on. But to give you a little bit more of a context on the initiatives in the way forward, especially the strength the systematic repeatable way of building the assortment. I have firsthand experience from several different times implementing that way of working, and that has driven gross margin expansion. I know that the demand driven supply chain getting closer to the demand will drive gross margin expansion.
What we can't do is we can't guide more
specifically right now What we can't do is we can't guide more specifically right now given that we have it's so much work in progress and we started 6 months ago. So we can't guide further out. I can just say that our ambition as a management team is to ASAP start to get these initiatives to deliver a higher gross margin. Another gross margin driver is strengthening the core. So a lot of the long tail didn't only perform had a low demand, it also had a low margin.
So by cutting the tail, we should be able to improve the margin. So there are a number of initiatives we are driving that will drive that over time more and more will drive gross margin. Just a
clarification on the $150,000,000 in inventory that's being written down. Where is that inventory right now? Is that in the value channel? Or is it in your own stores?
It's in our own channel. Okay. And that's a global number.
Okay. So we'll go to Westcott?
Westcott, Rishi at Evercore. When you look at your supply chain, you're getting your lead down. You're talking about the product assortment and looking at the fluidity, are you able to work with your wholesale partners to get a frequency of product in the stores as opposed to the traditional fall spring? How is that working? And how do you expect that to evolve going forward?
Thank you.
Thank you. That's an important question and that's laid out in the work ahead of us together with our partners. What's excited me again to just reiterate that they are on it. Every big customer I went around when I joined 6 months ago and I saw every big customer and every leader for every big customer is just ready to say we want to partner up with you to cut the lead times. We want to test how to buy differently.
So the work still has to be done, but their attitude is stellar. And our commitment to do this is 110%. So we will do it. And we will test it out and then gradually improve it.
Okay. Dave Weiner.
Hi. It's Dave Weiner from Deutsche Bank. So one follow-up question on product categories. I think accessories has hovered in the 8% of revenue range for,
I think, a couple
of years now. Can you talk about your commitment to that category? And then also comparable question on the Polo Sport side. I think you just really re ramped that last year, kind of what's the future road map for that?
So starting with accessories, it's one of the categories that we spoke about earlier. It's one of the growth categories for sure. We when we play in accessories, we do it well. We just need to intensify our focus to grow that category. And part of that work is led or a majority of that work is led from Valerie's team.
And we see that we are making progress, and we have just started. But that's one of the categories where we have significant growth opportunity. 2nd question was, sorry? Polo Sport. Yes, Polo Sport.
So if you look at moving away from thinking brand and then customer, if you look at the consumer's life and if you look at how the consumer builds up and how we build up our wardrobes and a bigger and bigger part is sports. And sports as a category is another category where we are underpenetrated. It's high growth rates. I think Ralph was 20 years ahead of sports launched Polo Sports 20, 25 years ago. And then we took our eyes off the ball, and now we're getting back in.
So sports is going to be important. And sportsathleisure is going to be even more important.
Okay. So 2 more, Michael.
Michael Eckstein with Credit Suisse. Thank you for a great strategic presentation. Could you give us an idea of what the demographics look like for your core customer domestically and internationally? How has it changed over the last 5, 10, 15 years, if it has changed?
So another strength of ours is that we cater to the whole family. So we have a very broad consumer base, and my goal is to focus in on the core of what made us great and strong and iconic from a brand perspective and the core of what's driving the business, these three brands. But doing that, we will cater to the whole family. And evolving the brand voice will make sure that we stay and increase our relevance with the millennials and the next generations coming up. It's I would say it's stable.
What we need to do is that the consumer is changing. So what's changing is that the consumer is in charge. Again, I'm just looking at my 9 year old daughter who consumes media in a completely different way. So that's why we need to evolve the way we do marketing and the way our brand voice works to fit into how she wants to project her life in style. We have one question.
Yes. I can't see
that I can't see who it is, but that one in the back. Maybe it's Brian.
Hi. This is Brian McGaugh with Hedge I Risk Management. I'm going to stand up because if you can't see me, I can't see you. So I have two questions actually, one about revenue and one about costs. And on the revenue side, it's a little bigger picture.
I mean a lot of the analysts in room get calls over and over again, especially when the stock's down big on one day. And they say, hey, what's going on with Ralph? Is the brand dead? And usually the brand's not dead. Maybe the stock's dead or just like Mamed, but the brand still looks really good.
However, when you look at like the type of product being bought by the 20 somethings and the 30 somethings of which I wish I was 1, things like Rag and Bone, Johnny O, Vineyard Vines, the whole 9 yards there, I mean, it's some stiff competition. And then there are some online stats like Comscore and all this other stuff that basically says that the average age of a Ralph Lauren shopper over the past 3 to 4 years has gone from 39 up to 45. Now I know there's always like plus or minuses in those data points, so I don't know if I really trust them, but they are what they are. It basically says that the brand is getting older, while there's more competition that's coming in down at the bottom end. So how important is it for you to drive the age of the brand down again?
And I know as both of you know, there's not a lot of brands that have done that. I would think there's anyone who can be you, but what do you think about
it? So our approach and I think Ralph's approach has always been to it's age less. What we do, we have to do really well. And when we do it really well, it appeals to a younger crowd and it's appealed to an older crowd. So what we need to do is that the way that we go back to the core of what made the brand iconic and what still makes it really, really strong, all age groups, is the brand survey, all age groups, really strong.
We have to make sure that we continuously evolve the product, the marketing and the shopping experience to reflect what the younger consumer expects in terms of inspiration for their life and style. But what excites me in doing this is the brands you mentioned, they come and go. Or every season, there are some new brands. We have been in this business. Ralph has been in this business for 50 years.
The brand is iconic. That makes it possible for us to go back to the core. And Valerie showed that what's in fashion today. So if you look at the big fashion macro trends, iconic style has never been more in fashion. You see, all the IT people have iconic style.
But what's important to us is that we take the tail off and focus in on what makes us uniquely strong and then we evolve that and then we make it relevant for today and for the next 5 years, 10 years. So the work that you're pointing at is extremely important. But what makes me bullish about it is that we have the longevity and the strength of the brand, we have the talent and we know exactly we have done a detailed assessment. We know exactly what drivers we need to drive differently to get not only the younger more of the younger consumers, but more of all consumers. So it comes back to the assessment of why we have struggled with the performance over the last few years.
We know exactly why, and we know exactly what we need to do, which is to go back to the strength of the brand and then take it way forward. So I feel really excited about the work ahead because the brand is so strong and we know what we need to do and we know what's important to the consumer. And in our plan, we're going to get closer to what made us strong and iconic and closer to the consumer. So and that's why I right sized the organization. I want the layers to come down.
I want the teams to be out. I want often the youngest are the doers. I want those who are out the most, those who are the 20th, I want them to have an ability to co create the future. So we are creating that. So all of that makes me really excited.
Then I'm sorry, lastly, if I can, just on costs. You had over the past year this new operating structure where you had a singular matrix. You had like product and you had geography. And then you basically put that into I mean, Bob, this is something you lived through for a while and into more of like a 6 headed hydra, right? I mean, it was like every little brand unit had its own little matrix in order to grow on a global scale.
And it seemed to me that some kind of operation like that needs a lot more employees instead of
a lot less. So I
guess I'm wondering, do you plan to pare down that operational infrastructure? Or do you plan maybe just to back off of that whole initiative that was put in place last year?
So, let me start with saying that the role of the brands in delivering the way forward is going to be increasingly important. And the brand presidents will do the work that Valerie gave her case study around. So their work is to continuously strengthening the offering. Then we have and I'm a big believer in matrixes because I believe in the strongest brand precedent driving the strengthening of the offering. I believe in having strong regional leaders who are experts on their regions and I believe in strong functional leaders.
And I believe in having that matrix work as one team and create positive friction through that. So we get the best of the brands, the best of the regions and the best of the functions.
Okay. I think that's all the time we have. You're ready to answer the questions.
Thanks. Yes. So before you leave this is the slide, Charles. Before you leave, we just want to thank you. On behalf of Ralph, myself, the whole management team, we want to thank you for taking the time.
We are committed to take this great brand and move the business to match the greatness of the brand and to keep you along on the journey. Thank you very much.
Okay. So it's still working.
Yes. We have lunch.
We have lunch. So that's the end of the webcast for those participating on that. So thank you for joining. For those here, we do have light lunch right next door. Please join us, the management team.
And
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