Kohl’s Corp. thinks it can reverse its sales declines — and even grow revenues by $2 billion by 2017.
This story first appeared in the October 30, 2014 issue of WWD. Subscribe Today.
The retailer’s chief executive officer Kevin Mansell and his deputies on Wednesday outlined a series of “bold moves” aimed at getting Kohl’s back on course after more than a year of struggles.
Sales growth and comps at Kohl’s have declined in five of the past six quarters.
“You’re going to see a new Kohl’s,” Mansell vowed during the retailer’s first analysts’ meeting in seven years.
Kohl’s said it plans to do $21 billion in sales in 2017, up from $19 billion last year. “Given that we haven’t produced [positive] comps in the last years, why is this realistic?” Mansell asked rhetorically. “We feel we have a really good plan to get there. You have a right to be skeptical. We don’t have the results. We can’t turn to last year’s or this spring’s results and say, ‘Believe us.’ We’re taking a more pragmatic and practical approach. We put the leadership team out front. You can hear what [we] have to say and see if it makes sense and see if the financial guy can tie metrics and sales to those plans.”
Kohl’s on Monday said its third-quarter comp-store sales likely will be down 1.4 percent and predicted lower-than-expected 2014 earnings. October sales were softer than the balance of the quarter, while e-commerce sales increased more than 30 percent. Mansell said he released the news early so the conference wouldn’t get bogged down by the metrics.
One of the retailer’s key moves is to cut its number of vendors. “We’re going to be more meaningful to fewer of our suppliers,” said Carol Williams, executive vice president of product development. “We’re editing down the size of the assortments. We had a lot of clutter on the floor. Each choice has to be meaningful. We’ve cleared 10 percent to 30 percent of choices off the floor.”
Another major switch in strategy is to renew its focus on national brands after cutting back on them in favor of private or exclusive labels. Jeff Manby, executive vice president and general merchandise manager, said, “We have to be relevant to families. National brands are important in every category. They’re core to our strategy and a big part of our heritage. We focused on our private, exclusive brands for several years to enhance value and differentiate ourselves. That emphasis took away from our national brands.”
Manby said national brands make up 50 percent of Kohl’s business, and 70 percent of first-time customers buy a national brand. “For many brands, we’re the leading retailer in America. We’re leveraging the great brands we have and introducing new brands.”
Kohl’s sells Adidas, Bali, Keds, Cuisinart, Converse, Levi’s, Hanes, Columbia and Carter’s, among others.
“We added 50 new brands to our Web site,” said Manby.
The retailer in September introduced Juicy Couture with a strong marketing campaign that included a partnership with Refinery29.
Kohl’s has identified key categories that it wants to emphasize and, as a result, is joining the rush to activewear, along with everyone from Macy’s Inc. to Target Corp.
“The active lifestyle is a huge opportunity for Kohl’s,” said Arthur Lewis, executive vice president of the New York design office. “Active apparel and footwear is a $50 billion industry. Yoga is hot. We’re developing an authentic apparel line with Gaiam.”
Like many of its competitors, Kohl’s also wants to highlight wellness and wearables, a $2.5 billion industry. There’s a strategy to build the outdoor recreation business, a $9 billion industry. “We have a 20-year history with Columbia Sportswear,” said Lewis. “We’re building out much bigger assortments.”
Menomonee Falls, Wis.-based Kohl’s will spend $750 million to $800 million on capital expenditures next year. But that won’t necessarily be for new brick-and-mortar stores. In fact, Mansell wishes many of Kohl’s stores were smaller.
“We’re pretty happy with the number of stores we have — almost 1,200,” said Mansell. “We wouldn’t rethink the breadth of our store platform. We definitely wish more of them were smaller stores. Stores that are 90,000 square feet today — and there’s a fair number of them — could have been 60,000 square feet and done the same business.”
After the meeting, Mansell told WWD that about 150 Kohl’s units are between 55,000 square feet and 60,000 square feet, compared with the bulk of the fleet, which measures 80,000 square feet to 85,000 square feet. Asked if store size will continue to shrink, he said, “You mean like CityTarget? We’re probably not ready to go there, but I wouldn’t be surprised to see some smaller stores in the future.”
In the past, Kohl’s lagged behind competitors in terms of technology. Its mobile app received a one-star rating, which Mansell said wasn’t acceptable. The company in the past three years invested $1 billion to re-platform and build infrastructure. The mobile app will relaunch in two weeks. A mobile wallet provides price clarity for consumers by calculating the price of a product after coupons and special offers are deducted.
“We have invested a lot of money and do not believe we’re behind anybody,” Mansell said. “We’re ahead.”
Kohl’s has more than doubled digital sales since 2011 and claims it has outpaced industry growth. Mobile traffic accounts for more than 50 percent of traffic on all devices. The retailer simplified the buying experience online with speed and transparency. Check out, which used to take five steps, can now be done in two.
Kohl’s also is changing how it handles deliveries. In the past, the retailer shipped orders from four distribution centers. “Now, we have over 800 shipping locations,” said Krista Berry, executive vice president and chief digital officer. “We rolled out Ship-to-Store to 800 of our stores. Pilot with Google Express opens up same-day delivery for us. Buy Online, Pick Up In Store is in 100 units and will roll out to all stores next year.”
The word “engagement” was bandied about a lot during the conference. “Stores aren’t going away,” said Jon Grosso, executive vice president of stores. He expressed sentiments that echoed the new mantra among brick-and-mortar stores, saying, “We have to make stores more enticing.”
Grosso said 78 percent of customers shop at a physical Kohl’s store, 18 percent shop in stores and online, and 4 percent shop exclusively online. Taking a page from Nordstrom’s playbook, Kohl’s is empowering sales associates. “Don’t get a manager involved unless you have to,” Grosso said. “It’s the human element.”
Kohl’s store environment is “getting away from being too basic,” Grosso said. “In the past, we would renovate a handful of stores and come back in 10 to 12 years. We’re looking at the entire fleet, [not just a handful], so all the customers can see change.”
“Aisles of Inspiration” is the name for new-product statements at the front of stores. “We will add more to create brand statements and lifestyles and to be less predictable than we have been in the past,” Grosso said.
Instead of dividing the country into seven broad geographic areas defined by climate and lifestyle, Kohl’s will have 1,000 different assortments based on data culled from shoppers and the data of partners such as Levi’s. “We’re changing our fits, styles and washes by location,” Grosso said. “We’re leveraging Census data and customer insights. In 150 stores with 40 percent or more Hispanic customers, we sell a different assortment.”
Kohl’s launched a partnership with Disney in April. Jumping Beans, an exclusive apparel collection, is one result. Another is “Frozen” departments based on the animated movie. “Our biggest play yet is ‘Frozen,’ ” said Amy Kocourek, executive vice president and general merchandise manager. “All retailers have ‘Frozen.’ We created a whole ecosystem around this franchise.”
Kohl’s plans to use a similar approach with assets, such as Star Wars, Marvel, the National Football League and July Fourth. A bid to capture teens led to Kohl’s partnership with DreamWorks’ AwesomenessTV YouTube station. “We created a new TV show called ‘S.o. R.A.D.’ and an apparel line, S.o. R.A.D. Teenagers are coming to Kohl’s because we’re doing something different,” said Kocourek.
Kohl’s shares closed down 22 cents, to $54.44, on the New York Stock Exchange.