Ralph's European Invasion

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EUROPEAN COWBOY: Ralph Lauren on the steps of his Milan office-cum-palazzo

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Wowing the fashion press, with their natural affinity for anything new, may be the easy part. Convincing the Continentals — particularly the conservative European male, weaned on a diet of Italian cashmere and French tailoring — may be more difficult. "Some Europeans know me very well," Lauren says. "But they know me for sport. Having the classy clothes is new to them." Lauren is encouraged in his mission by both the reviews and by what he sees as the nature of the European shopper. "It's a culture that understands quality and taste," he says. "They understand my clothes more than Americans. They're hungry for it. Armani and Zegna? They don't look like me." For fall, Armani looked east with kimono shirts and Mao jackets; Lauren went Gatsby with pleated trousers and waistcoats.

"Sometimes Europeans are bored with European brands," says Jacques-Franck Dossin, a Goldman Sachs luxury-goods analyst based in London. "Ralph Lauren is cooler, it's different, it's from the U.S." Carol Pope Murray, an analyst at Salomon Smith Barney in New York, more or less agrees. "Yes, I think there is a consumer in Europe who will buy the product," she says. "But the issue is, and has always been, can they do it and make a profit?"

The reality of selling clothes in Europe extends beyond creating styles that suit European tastes. The whole process, from creation to marketing to distribution, is completely at odds with what Lauren has done in the U.S. While European designers love centralization, Lauren is more willing to give important roles to others. Take creation. In the last 12 months Gucci Group has announced it will open a state-of-the-art facility for shoemaker Sergio Rossi by the end of the year. Armani has announced a joint venture with four shoemakers. And Marzotto, the new owners of Valentino, have promised that Val will get his own accessories plant too. All this activity in the name of corporate control and "made in Italy" on the label. Polo doesn't own a factory, doesn't make a single shirt or dress itself. "Owning a factory is a two-edged sword," says ceo Farah. "It works great on the way up. No one yet understands how it works on the way down." In other words, although Farah says they plan to move some of the company's production from Asia to independent European factories, why take the risk of having to lay off workers? Says Farah: "It's not at the core of how we want to operate."

Then there's distribution. In the U.S., 47% of Polo Ralph Lauren revenues come from selling to third-party retailers — mostly big American department stores in which Lauren controls a vast amount of floor space. In Europe, there are simply not enough department stores to support such a strategy. If Lauren wants to sell in Europe, he'll have to build, staff and run his own stores. Not an inexpensive proposition.

To tackle these issues — and ultimately the thorny matter of profit — the company says it plans to spend more than $1 billion in the next five years. "When Ralph invests, it's for the long term," says Ron Baron, ceo of Baron Funds, which has $137 million invested in Polo Ralph Lauren. First up, five new stores in Manchester, Glasgow, Antwerp, London and Paris. To start, the company will focus on just half of Lauren's many offerings, including the top-of-the line collections for men and women, children's wear, men's sportswear and Ralph Lauren Blue Label, a new women's casual line that will debut this September. What won't be coming are the lowest of the Lauren lines — Chaps and Lauren — those produced by licensees in the U.S.

"Thirty-five years of business in the States taught us what we want to do and what we don't want to do," says Farah, who will oversee the retail operations. "What we want to do is establish the high end of our business first." Lauren too thinks his experience in the U.S. can help him in Europe. "I started out in America piece by piece. Now I'm coming with all the equipment," he says. But not always waving the American flag. "All the stores are international now. Someone who is 12 years old doesn't know if Armani is Italian. These stores are a part of life, you respond to them based on if you like them or not."

It would be easy to say Lauren's view is a simplistic one, that he doesn't know Europe very well, that he speaks only English, that he doesn't shop the stores in Milan ("It's not about stores to me, it's about people," he says). He is not, he admits, a "kiss-kiss kind of fashion guy." So how could he possibly understand the European psyche? Fact is, he can't. He can't any more than a working-class boy from the Bronx, which is what he is, can understand the psyche of the American upper class, which is what his clothes embody. Lauren has been railing against this sort of criticism since he started his business. "The idea that there is a correlation between where you come from and what you make is ridiculous," he says. "I have a taste level that people respond to." And, by the way, Lauren now lives the life he's been touting. He's got a collection of antique cars, a 14,000-acre ranch in Colorado, a mansion in Bedford, New York, and a Fifth Avenue duplex. That's just the beginning. There are also homes on Long Island, in Jamaica, a collection of antique watches, and motorbikes and, yes, a private plane.

Last year consumers around the world spent $10 billion on Polo Ralph Lauren products, making him the world's best-selling fashion designer by far — and proving his point. What Lauren has been saying all these years is that he doesn't have to understand the psyche of anyone. What's important is that the world understands — and wants — his sense of style. In the U.S. they do. In the rest of the world? Well, Giorgio Armani, Ermenegildo Zegna and Wall Street will certainly be watching.
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