Chapter 57 - Ralph Lauren: The Man Behind the Mystique
Today’s Chapter is based on the book “Ralph Lauren: The Man Behind the Mystique” by Jeffrey A. Trachtenberg.
Here’s what I have learned from the book:
Delegation
“It doesn't make sense to hire smart people and then tell them what to to , We hire smart people so they can tell us what to do.”
— Steve Jobs
As we have previously learned, Steve Jobs started Apple Computer with his friend Steve Wozniak because no other companies were interested in building personal computers at the time. On this, Jobs mentions that The reason we [Wozniak and I] built a computer was that we wanted one, and we couldn’t afford to buy one. They were thousands of dollars at that time. We were just two teenagers. We started trying to build them and scrounging parts around Silicon Valley where we could. After a few attempts, we managed to put together something that was the Apple I.”
Due to this experience, Steve Jobs established Apple’s core principle as “building products that you would want to use yourself”. As a matter of fact, the iPhone was created due to the fact that the engineers at Apple all hated their phones and wanted to build one that they could enjoy using.
“Steve gave a speech once, which is one of my favorites, where he talked about, in a certain sense, “We build the products that we want to use ourselves.” And so he’s really pursued that with incredible taste and elegance that has had a huge impact on the industry.“
— Bill Gates
Similarly, Ralph Lauren started his clothing company because he wasn’t able to find clothes he would want to wear. Lauren initially did not dream of becoming a fashion designer, but he told himself that if he didn’t see what he wanted, he would need to design it himself. As a matter of fact, Lauren was not considered a great designer, in fact, he couldn’t even sketch!
“I make clothes I like to wear.”
— Ralph Lauren
So how did Ralph Lauren succeed?
First, while he was not a great designer, Lauren did have was a great sense of fashion. His wardrobe left others shaking their heads in wonder. One of his colleague mentions that while he may be making forty or fifty dollars, he dressed like he was making a million bucks. He was so famous for his fashion style that in May 21, 1964, a full page appeared in the Daily News Record about Ralph Lauren’s wardrobe.
Second, Lauren was great at delegating. While he didn’t know how to sketch or drape or how to cut a fabric, he was great at communicating his ideas to others. He would hire sketchers and drapers and sewers to do the job he couldn’t, but the clothing concepts always came from himself. Furthermore, he was a great motivator; he knew how to generate loyalty from his employees and knew how to make them feel important.
Finally, once the company got larger, Lauren was willing to delegate the business management side of the company so that he could stick to what he knew best: designing.
This Ralph Lauren story reminds me of Paul Orfalea, the founder of Kinko’s. Due to his dyslexia, Oefalea had to rely on others in order to succeed. However, this concept of delegating to others became a great advantage.
Firstly, Orfalea explains that “doing life alone is not second best, it’s impossible.” In fact, when he founded Kinko’s, not only did he had to rely on his copy machines to operate his venture, he also had to rely on other people to manage the stores, to run the company’s real estate ventures and investment opportunities. Orfalea’s motto in life is "Anybody else can do it better."
Secondly, by relying on others, Orfalea had more time to focus on the big picture at Kinko’s which allowed him to be “on” his business rather than “in” it. He explains that “Being “on” your business and your life means having enough detachment every day that you are constantly reassessing your direction, thinking creatively about your overall strategy, and scrutinizing your competitors' tactics. It means relying on others to attend to most of the details of the day-to-day operations and employing a system of checks to verify that you are on the right track.”
As such, by being on your business rather than in your business, you have a lot more time to sit back and think creatively about where you can improve on your business. In Orfalea’s case, he would take this extra time “to scrutinize our competitors' tactics and concoct strategies for beating them. It gave me a chance to mull over the innovations coworkers in different stores had created. It gave me perspective.”
“Staying "on" your business and not "in" it is a question of timeframe. Ask yourself where you are right now. Are you living in the past, the present, or the future? One of the most important things you carry with you is your frame of reference. Being constantly busy means you are too wedded to the past. When you're that busy, you can't see the present, and forget about the future.”
— Paul Orfalea
Brand Image
“A brand is a promise.”
— Warren Buffett
As we have learned previously, a strong brand name can be considered a competitive advantage because it helps a company to differentiate its products or services from its competitors. A strong brand name can create a perception of quality, reliability and trustworthiness in the minds of consumers, which can lead to increased customer loyalty and sales.
In Ralph Lauren’s case, he understood that he wasn’t selling clothing products, but a lifestyle. He understood that the reason someone would be spending more than 90$ for a simple cotton sweater was because he wanted to identify with the images of a world that Ralph Lauren promoted.
As a natural salesman, Ralph Lauren’s label was promoted in a way that his clothes would fulfill a variety of psychological needs, such as the need to conform among his customers. As Berny Schwartz once said, “Wearing a Ralph Lauren tie in those days was like belonging to a fraternity.” As such, when customers wear a polo from Ralph Lauren, they felt special. They felt like they were coming out of a movie like they were Fred Astaire or straight out of the Great Gasby.
As a matter of fact, Ralph Lauren was a lover of old movies and he knew everything about images. He understood how powerful images are considering an image meant identity and buying somebody else’s image meant sharing that identity. Hence, when a customer became an eager Ralph Lauren consumer, he was sharing Lauren’s identity.
Ralph Lauren differed from others designers at the time. In the 1970, most designers either made suits or ties or sportswear. Lauren was the first to build a collection of looks, what he called “life-style marketing”. In fact, he was the first to address how customers imaged themselves living. While others were selling distinct clothing apparel, he was selling the ideal of a different life. As Spencer Johnson once said about Ralph Lauren, “People don’t buy our services, products or ideas, they buy how they imagine using them will make them feel.”
"I'm not selling one product, I'm selling many products, many worlds. When people go to a movie they come out wanting to wear what the movie star was wearing. 'I want that hat, I want that dress.' Why? Because they liked that person. They liked the character. They were romanced by the mood, not necessarily by what a person was actually wearing. They may not know how to wear something, where it should be worn, how it should be worn. But when they see it worn in the right environment, they understand it. If you are selling a flannel shirt, you say, 'Where do I wear flannel shirts? Around a campfire, a nice place for weekends, a nice setting in the country.' That's what gets the customer: you want be there. What made me think of that? I'm that person, that customer. I always loved environments."
— Ralph Lauren
Exclusivity
“Affordable luxury — these are two words that don’t go together.”
— Bernard Arnault
It is fair to say that Ralph Lauren is a well-established brand name, but that was not always the case. Lauren worked hard to promote its brand image to make it more desirable to his customers. He did so by doing two things:
First, Lauren promoted an image of exclusivity to his products. As a matter of fact, the company name started as Polo Fashions because polo was a rich man’s game that illustrated money, style and exclusivity, the same qualities that Ralph wanted his company to have. This could be seen with the way Ralph Lauren would advertise his products.
Ralph Lauren had amazing instinct in motivating the customer to buy his products, whether it was fragrance, cosmetics or shirts. While other clothing companies were advertising a single product, Lauren was promoting a lifestyle by communicating with images. Lauren once said, “The line is designed with a story in mind, a story we discuss. We talk about clothes and how they are worn and where they are worn and why you wear it…If I'm working with a fabric I like I will say, okay, put this in all the accessories, put it into wallpaper, put it into this or that. I know where I want to see it. There's an overall picture. Do this, this, this. That's how I work."
Lauren would often use various themes such as family, romance or elegant living in his advertising and this never changed since the inception of Ralph Lauren.
"Advertising is not supposed to be about buying. When I started, people thought they had to stand there with a suit and say, 'Here's my suit.' That's how the industry worked. I said, 'No, the clothes have to be there but it's the mood that's important. Why do you become enamored with something? It's the image and mood of these people, who they are, what they feel like, you like them, and then you like what they wear."
— Ralph Lauren
Furthermore, Lauren made sure that his store would also be a medium to tell his story to his customers. As he didn’t have much money to advertise, his store became even more important in the promotion of his brand name. As such, he made sure that it was decorated similar to the lifestyle that Ralph Lauren’s brand represented. And, to make it even more appealing, Lauren made sure that the employees hired in the store would project the Polo image.
Second, in order to make Ralph Lauren chic and exclusive, Lauren made sure to not have his products sold in stores that would kill the mystique or the exclusivity. As a matter of fact, he never wanted to do business with big department stores as it would kill the company’s exclusivity.
“Exclusivity, individuality, being special, relating to certain images. If you buy expensive products you don't want to see them all over the place. You want to know what you are getting is a rarity. I still believe that."
— Ralph Lauren
This concept of increase a brand’s image through advertising reminds me of what we have learned from David Ogilvy, considered the “Father of Advertising”. He is notorious for promoting the idea that companies should take advertising not as an expense but as a long-term investment to build the company’s brand. He once said that “every advertisement is part of the long-term in the personality of the brand.”
As a matter of fact, Ogilvy explains that the company “who dedicates his advertising to building the most favourable image, the most sharply defined personality, is the one who will get the largest share of the market at the highest profit—in the long run.”
For this reason, Ogilvy mentions that he must plan ten years ahead when writing advertisements for his clients, as he must create a sharply defined personalities for his companies. Once that is done, he must stick to those personalities year after year.
“Today, I have come to believe, with Gardner and Levy, that every advertisement must be considered as a contribution to the complex symbol which is the brand image. And I find that if you take that long-term approach, a great many of the day-to-day creative questions answer themselves.”
— David Ogilvy
Using exclusivity to increase one’s brand image is not uncommon in the world of fashion. As a matter of fact, Bernard Arnault from LVMH also acquired Dior as it embodied “everything that is most beautiful in the world.” He understood how powerful the Dior name was and how luxury can turn into a very profitable industry.
While his friends said he was in love with the luxury goods industry, Arnault replied: “Not at all. You can’t explain love. My relationship to luxury goods is really very rational. It is the only area which it is possible to make luxury profit margins.” In my opinion, Arnault’s tenure with Dior and at LVMH proved how brand name can be a terrific economic moat. Here’s what Arnault said concerning his objective at the helm of LVMH following his purchase of LVMH which truly highlights his understanding of the power of brand name.
“My ten-year objective is that LVMH’s leading position in the world be further strengthened in the luxury goods sector. I believe that there will be fewer and fewer brand names capable of retaining a worldwide presence and that those of our group will be among them as we will provide them with the means for growth [...] My plan for the next six months is to see all the group managers and increase their motivation by sharing my highly ambitious objectives with them.”
— Bernard Arnault
Scale
“But, at any rate, it’s an interesting model of how the scale of things and fanaticism combine to be very powerful.”
— Charlie Munger
In his famous speech at USC Business School delivered in 1994, Charlie Munger goes over the advantages of economies of scale and how combined with fanaticism it can lead to amazing results. As a matter of fact, Munger explains how Sam Walton built Wal-Mart through the powerful combination of scale and fanaticism:
“It’s quite interesting to think about Wal-Mart starting from a single store in Bentonville, Arkansas against Sears, Roebuck with its name, reputation and all of its billions. How does a guy in Bentonville, Arkansas with no money blow right by Sears, Roebuck? And he does it in his own lifetime—in fact, during his own late lifetime because he was already pretty old by the time he started out with one little store…
He played the chain store game harder and better than anyone else. Walton invented practically nothing. But he copied everything anybody else ever did that was smart—and he did it with more fanaticism and better employee manipulation. So he just blew right by them all.
He also had a very interesting competitive strategy in the early days. He was like a prizefighter who wanted a great record so he could be in the finals and make a big TV hit. So what did he do? He went out and fought 42 palookas. Right? And the result was knockout, knockout, knockout—42 times.
Walton, being as shrewd as he was, basically broke other small town merchants in the early days. With his more efficient system, he might not have been able to tackle some titan head-on at the time. But with his better system, he could destroy those small town merchants. And he went around doing it time after time after time. Then, as he got bigger, he started destroying the big boys.
Well, that was a very, very shrewd strategy.
You can say, “Is this a nice way to behave?” Well, capitalism is a pretty brutal place. But I personally think that the world is better for having Wal-Mart. I mean you can idealize small-town life. But I’ve spent a fair amount of time in small towns. And let me tell you you shouldn’t get too idealistic about all those businesses he destroyed.
Plus, a lot of people who work at Wal-Mart are very high grade, bouncy people who are raising nice children. I have no feeling that an inferior culture destroyed a superior culture. I think that is nothing more than nostalgia and delusion. But, at any rate, it’s an interesting model of how the scale of things and fanaticism combine to be very powerful.”
— Charlie Munger
Similarly, in my opinion, Ralph Lauren succeeded in building an American fashion staple through his fanaticism and scale. As a matter of fact, once he built his brand image through the mystique and exclusivity, he was able to use it in various other products. Considering he was selling a lifestyle rather than a product, it was easier for him to do so.
One thing he did was to start a cheaper alternative clothing line. Considering people were creating Polo knockoffs, he decided to capitalize on this business by selling 10$ jeans. It ended up being a great marketing hook too since the 10$ customers today could turn into 250$ Polo suits buyers tomorrow.
This was effective especially considering the fact that the Polo & Ralph Lauren label’s image was catered to students. Ralph Lauren had a strong following among students at private elementary schools, public high schools, and colleges. As these customers would grow older and earn more money, they could advance the more expensive lines.
Secondly, Ralph Lauren got into the licensing business. In fact, while Lauren owned his store in London, the others were all owned by others who would pay him 5 to 7 percent of sales. Licensing was also the way Lauren got into the fragrance business. The beauty of this was that Lauren did not need to understand the fragrance business or to handle the manufacturing or the distribution to earn his fortune. Lauren only had to make sure that he continued to promote his image and to maintain its exclusivity to find success.
“He wasn't selling a scent; he was selling an image of how that scent would make its wearer feel. And as his perfumes would show, he understood this far better than anybody else had before him.”
— Jeffrey A. Trachtenberg.
Beyond the Book
Read "Moats - Competitive Advantage" by Investment Masters Class