Retailer Ralph Lauren made progress in its quest to beef up its global brick-and-mortar footprint, opening 29 new stores — most of them in China — in the most recent quarter.

The New York-based company and fellow luxury retailer Tapestry — the parent of such well-heeled brands as Coach, Kate Spade and Stuart Weitzman — both reported earnings recently that showed high inflation is beginning to have an impact on their U.S. businesses.

Ralph Lauren offered Wall Street its update during a fiscal 2023 second-quarter earnings call Thursday, where the lifestyle brand said that overall revenue increased 5% to $1.58 billion, ahead of expectations. The results in North America and Europe for the period ending Oct. 1, however, were far less robust than they were in the Asian market, showing the challenges creeping into the upscale sector.

“While the revenue line is looking healthy, the bottom line is under some pressure and margins are down,” Neil Saunders, managing director of analysis firm GlobalData, said Thursday in a note to clients. But he also described the 5% sales increase as “good progress for the brand across most of the geographies in which it trades.”
 
Luxury retailers such as Ralph Lauren have been much more immune to the impact of inflation and the threat of recession because their customers tend to be less price-sensitive than middle- and lower-income consumers. In fact, a variety of upscale retailers have big store fleet expansion plans in the U.S and other parts of the world, despite the macroeconomic headwinds. At an investor day in September, Ralph Lauren officials discussed plans to open 250 stores through 2025, citing opportunities in smaller U.S. cities and internationally.

In the case of Ralph Lauren, it is also pulling back its apparel from some third-party retail sellers and off-price stores, looking to restore the brand’s luster by selling its wares at its own stores. That is one of the company’s core strategies and one of its “multiple engines of growth,” according to CEO Patrice Louvet.

The fact that Ralph Lauren doesn’t have a huge fleet of stores compared to its luxury peers is a disadvantage, according to Saunders.

“The next step in this evolution is for Ralph Lauren to build a stronger direct distribution network, especially within the United States,” Saunders said. “As much as it has worked hard to do this in the digital space — with some good results to date — digital growth is now slowing as consumers return to physical stores. This is evidenced in the flat digital comparable for North America this quarter. The problem is that compared to many luxury brands, Ralph Lauren has a patchy and subpar own-store network. There are many high-end malls and destinations, for example, where it simply doesn’t have a presence so is reliant on third-party stores to push its product. With its newfound energy, we believe Ralph Lauren can afford to be much more ambitious about opening more stores to showcase its products and drive further customer acquisition.”

Saunders said that Ralph Lauren is on the right track trying not to depend too much on discounters and department stores.

Ralph Lauren has 534 freestanding stores globally, with 239 in North America. In addition, it has 712 concession-based shop-within-shops, with only one of those in North America.

The company’s North American revenue in the fiscal second quarter rose 3% to $727 million. Comparable store sales in North America were flat, with a 1% decrease in digital commerce and wholesale revenue increased 8%. The retailer had a much better showing in Asia despite COVID-19 lockdowns. Revenue increased 17% to $316 million. Comparable store sales in Asia increased 25%, with a 25% increase in stores and a 22% increase in digital commerce.

New York-based Tapestry reported its fiscal first-quarter earnings Thursday. The company said it delivered revenue growth of 2%, to $1.51 billion. In North America, revenue rose slightly versus the prior-year period.

Tapestry officials expressed concern about the economic headwinds, and Ralph Lauren’s Louvet said the company was “seeing softer trends” in its outlet stores, where more price-conscious, less resilient consumers were likely to shop.

“We expect the environment to be choppy in the near term,” he told analysts.

Their earnings and comments indicate the issues upscale retailers may be facing, according to GlobalData's Saunders.

“Today’s results from Tapestry and Ralph Lauren show that while the luxury sector is holding up better than many parts of retail, it is not completely immune from the wider slowdown in the consumer economy,” Saunders said in an email to CoStar News. “Sales growth is now trending well below [what was] delivered over the past couple of years, and bottom lines are being more pressured by rising costs. As many luxury brands have big international businesses, a particular problem has been the strong dollar, which is eroding foreign earnings. All in all, everything signals a soft landing rather than a dramatic crash, but luxury is in for a much tougher time in 2023.”