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).