Case Type: improve profitability.
Consulting Firm: A.T. Kearney 1st round internship interview.
Industry Coverage: apparel, clothing & textiles; retail.
Case Interview Question #00223: Your consulting firm was hired by Polo Ralph Lauren (NYSE: RL), a well-known manufacturer of designer men’s and women’s clothing. Headquartered in Midtown Manhattan, New York City, Polo Ralph Lauren specializes in high-end casual/semi-formal wear for men and women, as well as accessories, fragrances, home (bedding, towels) and housewares.
A few years ago, the client decided to open a new distribution channel – their own retail store. They opened one store in New York City, which quickly became very profitable and successful. They then decided to open 3 new stores in 3 big cities: Chicago, Boston, and Dallas, respectively. After 5 years, The company found that the Boston Ralph Lauren store was not as profitable as the one in New York City despite the fact that both Boston and NYC are geographically located in the same northeast region with a distance of only 200 miles.
Why is the Boston Ralph Lauren store less profitable than NYC store? How would you go about assessing the source of the problem?
Additional Information: (to be given to you only if requested)
- Both stores are in very good shopping locations and the stores are the same size.
- In terms of fixed costs, they are about the same although the lease for the New York City store is slightly higher.
- In terms of variable costs, labor, inventory, electricity, overhead, and taxes are all the same.
- They sell different merchandise. The New York store sells more upscale clothing, i.e. suits, based on the local demand. The Boston store sells more weekend or casual wear , i.e. sweaters, shirts, khakis (Note: This is key to answering the case and should only be provided if the candidate asks for this information).
- The profit margin on the upscale clothing is higher than on weekend or casual wear (Note: This is key to answering the case and should only be provided if the candidate asks for this information).
Possible Approach:
As far as the merchandising strategy is concerned I feel both the stores have made the correct choices according to the need of the market. New Yorker’s spend more on up market goods compared to denizens of Boston. Boston is more concerned with value for money. Also fashion in New York is more upmarket than Boston. These two reasons have resulted in the current merchandize.
To increase the revenues in Boston market :-
Customers can be incentivised for higher buy and given a coupon which they can redeem and in turn they will visit the store again.
Also aspirational products in Boston market can be identified, added to the merchandizing mix and promoted.
Good case and well structured, but not solved completely. At the end I miss a couple of suggestions for rise revenues decrease costs: My proposition:
Increse Revenue:
– Sell more suits and high-profitable wearing: improve brand image with publicity with high-impact models (executives, senior directors…) maybe opening a little store just to sell suits, maybe tailored suits…. maybe hiring management staff form the competence…
– Improve current product sales (medium-low prift) Increase Marketing and publicity, look for sign contracts with private colleges to design their uniforms, lowering the price for several items, promotions, maybe opening an outlet with products from other years…
Reduce costs:
– Moving the store to a medium-income people standards, where rental costs will be lower, reduce our staff, look for younger and cheaper people, reduce stores size…..