With only an eight-year official presence in mainland China — opening its first stores there in 2011 — Ralph Lauren is both a relative newcomer and a well-established brand among Chinese consumers. Having developed strong name recognition initially via trips to Hong Kong taken by mainland businesspeople and tourists in the 1980s and ‘90s, for the past two decades the brand has been hit hard by the counterfeit trade, with the Chinese market flooded with fake Polo shirts and knockoff brands.
But a stronger on-the-ground presence, centered around its hundreds of stockists throughout Greater China along with its Ralph’s Coffee location in Hong Kong, and massive investment in digital marketing and e-commerce is showing signs of paying off. This week, it was reported that Asia remains the fastest-growing division for Ralph Lauren, with China accounting for the majority of the region’s growth.
For FY2019, China represented roughly 30 percent of the revenue growth in the Asia segment, and was a major focus for new store openings. Of the 94 Ralph Lauren stores opened in Asia in FY2019, 39 were in China. Analysts expect this trend to continue in FY2020, driven by the launch of the directly owned Ralph Lauren e-commerce site last year, which is poised to benefit as the online apparel market in Asia reaches an estimated $1.4 trillion in 2020.
As Jing Daily wrote last year, Ralph Lauren is aiming to reach $500 million in revenue in five years from the Greater China market. And this is very much possible — despite its massive physical and online presence in China and draw among Chinese tourist-shoppers (particularly at outlet malls in Europe and North America), China currently only accounts for around 3.5 percent of Ralph Lauren’s global business.
Despite all of this growth, the ceiling is nowhere near in sight, provided the Ralph Lauren brand doesn’t get caught up in the same issues ensnaring other foreign brands in China in recent months. The main area in which China remains a liability for Ralph Lauren has nothing to do with Chinese consumers, but rather the ongoing U.S.-China trade war and greater cost of importing China-made items, as NBC recently noted.
Trump’s latest round of China tariffs predominantly affect consumer goods companies as the duties cover clothing and electronics. Those affected companies with exposure to Chinese imports include Ralph Lauren, Whirlpool, HP and Under Armour, according to a J.P. Morgan analysis last week. Ralph Lauren and Whirlpool both dropped more than 3%.
However, if the trade dispute somehow manages to be resolved quickly, strength in the Asia division might help make up for continued challenges in Ralph Lauren’s home market of the U.S. But the brand’s North America division must grapple with much more than just higher tariffs digging into profits. Another major concern for China-watchers is fewer Chinese tourist arrivals and the possibility of a decrease in Chinese international students coming to the U.S. in the months ahead. Already, retailers have seen a plunge in Chinese tourist spending after years of red-hot growth. According to the National Travel and Tourism Office, travel from China to the U.S. dropped nearly 6 percent in 2018, the first such drop in 15 years, and the first half of this year saw a 5.3 percent drop compared to the same period in 2018. Business travelers were more or less flat in the same period, and students saw a mild increase.
Now, the question will be whether Chinese consumer sentiment towards the U.S. — and, by extension, U.S. brands — will impact Ralph Lauren’s gains in that market.