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Sources say Jones and Polo Ralph Lauren continue to be far apart in their discussions, which have become very contentious, and it looks increasingly likely that Polo Ralph Lauren Corp. will get back the Lauren by Ralph Lauren and Ralph licenses and set the businesses up in-house. Polo is also negotiating to acquire the long-term Polo Jeans license from Jones, said sources. Of course, legal action on Jones’ part is still a possibility.
As written in these columns, Jones has reportedly held preliminary discussions about acquiring Tommy Hilfiger Corp. and is talking to Phillips-Van Heusen about licensing the CK Calvin Klein name for women’s better-price sportswear, but sources say any new developments can’t occur until the Lauren situation is resolved.
Sources said Polo is determined to get these businesses back and run them independently, and it’s not a question of Jones raising the royalty payments to Polo. Jones pays a 7 percent royalty rate to Polo on each of its three Lauren businesses. Polo reportedly rejected an increase to 12 percent, and sources said Peter Boneparth, president and chief executive officer of Jones, presented a proposition to his board of directors to increase the royalty rate to 15 percent, which the board turned down.
The present dispute between Jones and Polo stems from the weak sales of the Ralph licensed line. For 2002, the contracted minimum for the Ralph line was $100 million, but Jones’ revenues from the Ralph license were just $37 million.
According to sources, Polo claims the Ralph license is linked to the Lauren by Ralph Lauren license, which is a much more successful line and did $548 million in net sales last year. Although the Ralph license expires Dec. 31 of this year, and the Lauren license runs until Dec. 31, 2006, sources said the two contracts are linked, and once Jones defaults on one, it automatically defaults on the other. Sources said Polo’s view that the deals are linked together gives it leverage if things were to go wrong with one deal.
However, Jones has contended that this is an improper interpretation, and that the expiration of the Ralph license does not cause the Lauren license to end. The long-term Polo Jeans contract is not part of the dispute.