uc santa barbara water polo Stake In Ralph Lauren’s Empire
An investment fund managed by Goldman, Sachs Company has purchased a 28 percent stake in the intensely private Polo Ralph Lauren Corporation for $135 million, creating a partnership between two of New York’s trophy institutions.
Goldman is the first outsider to gain a stake in Mr. Lauren’s vaunted retail, apparel and home furnishings empire, which was among the first fashion companies to sell a life style instead of just products.
Mr. Lauren, the master marketer who founded the company and owns 90 percent of the stock, and Peter Strom, Mr. Lauren’s longtime business partner, who owns 10 percent, have kept a firm grip on the company’s ownership until now, and it was clear that the decision to bring in an outside source of funds was not an easy one.
“I have allowed Goldman, Sachs to invest in my company,” Mr. Lauren said in an interview yesterday in his office on Madison Avenue, which could serve as a set for many of his company’s ads, with its dark paneling, overstuffed furniture and antique rugs.
The bulk of the company’s profits come from royalties on its extremely lucrative licensing agreements, which lend the Ralph Lauren name to manufacturers of eyewear, fragrance, furniture and a range of apparel. Polo Ralph Lauren only manufactures its men’s sportswear, coats and furnishing lines; all other Ralph Lauren products, ranging from towels and sheets to shoes and sunglasses, are manufactured by others under license.
Goldman’s stake represents an investment in some of the royalty revenue but not all of it, so the value of the company may be somewhat higher than the purchase price indicates. “They won’t have all of my royalties,” Mr. Lauren said yesterday.
He said he had agreed to the investment because he needed money to finance his company’s growth. Many entrepreneurial apparel companies find it difficult to support growth without bringing in additional capital, and it is a testament to Mr. Lauren and Mr. Strom that Polo Ralph Lauren has been able to grow so large without a capital infusion. Mr. Lauren said that about $3.9 billion worth of his products would be sold during the fiscal year that ends March 31.
“I was faced with something of a dilemma,” he said. “How could I stay private, which is what I preferred, and yet how could I still go forward with all the things I still want to do with this company?” Plans for Expansion
Although Mr. Lauren said he had no “master plan” for using the money from Goldman, he said he envisioned spending more on advertising and marketing, building new concepts and expanding the retail portion of the company’s business, which requires extensive capital investment. He has decided, for example, to extend Ralph,
a younger, hipper apparel line he introduced this spring, to sheets, towels and other home related products.
He said he also wanted to expand Polo Sport, a sleek new store the company opened on Madison Avenue last fall, sell a new line of sports apparel and extend the company’s reach abroad, particularly in China.
His vision is what Goldman is banking on. “What we see in this is Ralph and his ability to create and build businesses, rather than buying other people’s businesses in order to grow,” said Richard A.
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Mr. Lauren made it clear that while he welcomed the investment bank’s financial expertise, he would continue to have the final say on all decisions. “I am running my business,” he said.
Even though rumors that Goldman was working on ways to raise new financing for Polo Ralph Lauren had been buzzing for months, the partnership announced yesterday took Seventh Avenue and Wall Street by surprise. Many people in the garment industry have speculated that Mr. Strom wants to retire and that the company needs financing to buy out his 10 percent stake.
Mr. Lauren said yesterday that the partnership with Goldman had nothing to do with Mr. Strom’s future plans, which are not set.
Wall Street has tended to spurn investments in fashion apparel businesses because they rely so much on the whims and fancies of consumers. Both Calvin Klein and Donna Karan, two other big American designers, have tried and failed to raise money either through a debt offering or an offering of stock.
“The most interesting aspect is that Ralph is taking on a partner, which has to be a precursor to taking the company public, because Goldman doesn’t make that kind of investment without having a way out,” said Peter J. Solomon, an investment banker who has many retail and apparel clients.
At numerous times during the interview yesterday, Mr. Lauren’s aversion to selling his company to the public, with the intense regulatory and financial scrutiny such a move entails, was apparent. “I’m a private company, and I like my own privacy,” he said.
A spokesman for Goldman said the investment bank had no preplanned exit strategy for its investment. But people on Wall Street said it was impossible to believe that Goldman, one of the savviest and most profitable investment banks, would not have a plan for getting its money back. The company typically aims for a 35 percent rate of return on its merchant banking investments.
Some analysts suggest that the reason Goldman did not propose a public stock offering was because Polo Ralph Lauren’s growth has slowed over the last several years. Retailers say that Nautica and Tommy Hilfiger have knocked off Polo’s prep school look, but at lower prices, and that the company’s new concepts, like the RRL line of rugged jeans, flannel shirts and scuffed leather that mimic Mr. Lauren’s personal style, have not taken off as rapidly as expected.
Nonetheless, the sheer number of new ideas coming out of Mr. Lauren’s head at a time when the fashion industry seems to be satisfied with endlessly regurgitating old looks gives him an edge. In the last year alone, he has started RRL, Polo Sport,
a line of Polo Sport skin treatments and the Ralph label.