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Ralph Lauren CEO Leaves After Creative Clash With The Man Himself

|Includes: Ralph Lauren Corporation (RL)
  • In attempt to revive a struggling brand, Ralph Lauren brought in former Old Navy and H&M CEO, Stefan Larsson
  • Larsson will leave his post on May 1, less than two years after taking on the role
  • The announcement sent shares in a downward spiral, receiving downgrades from multiple institutions including Goldman Sachs and Citi

Ralph Lauren started the Polo brand in 1967 and has seen tremendous growth, both domestically and globally since its inception. The Polo brand is arguably the most iconic and symbolic logos in the American fashion industry, but has now become a symbol of the struggling reality retailers are facing.

Larsson, who successfully turned around a dying Old Navy brand, replaced Ralph himself in November 2015. Ralph stayed on as the chief executive and chief creative officer, playing a vital role in the company's culture and design.

In recent years, the company has suffered from heavy discounting and an over-reliance on the beleaguered department-store industry. Macy's, where you can find in-store shops of Ralph Lauren products at almost every location, will be closing 68 stores and slashing approximately 10,000 jobs only further illustrates the troubles malls and department stores have faced. The brand also has an aging customer base and no clear way to appeal to more millennial shoppers.

There are approximately 75 million millennials here in the United States, making up almost one-quarter of the population. Millennials have not been making their way into traditional brick-and-mortars but rather spend time shopping online for younger, trendier brands. In addition to the rise in e-commerce, millennials are spending more of their disposable income on subscription services like Netflix, Hulu, and Spotify premium, as well as paying for experiences like trips and travel.

Ralph Lauren, 77, said he and Larsson could not ultimately agree on the creative direction to take the business. Keep in mind, the company is called Ralph Lauren and has his name on all of the clothes, not Stefan Larsson.

The news sent shares tumbling down by as much as 12% to $76.75. The stock had already fallen 22% in the past 12 months as investors remained uncertain and skeptical about Larsson's turnaround plan. Analysts were hopeful in November 2015 causing shares to jump upon the announcement that Larsson would come in as CEO, but that sentiment quickly faded as illustrated below.

Source: Yahoo Finance

Larson may have been doomed to fail from the beginning because of his background in budget apparel, which runs counter to Ralph Lauren's upscale image.

Several executives across different brands have left the company in the past couple of months because of the culture and leadership change. Stefan has not been shy about shaking up management ranks, laying off thousands of corporate and retail employees, discontinuing brands like Denim & Supply, and shuttering doors across the country.

The company will pay Larsson's bonus for F17 and part of F18. Equity awards worth about $2.56 million as of Wednesday's close will vest immediately. His remaining compensation is rumored to be worth $10 million which will be paid out over the next two years.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.