Will new store concepts work for Kohl’s?
As part of new initiatives under its Greatness Agenda strategy, Kohl’s is pursuing three unique expansion opportunities: smaller stores, off-price stores and outlet stores featuring proprietary brands.
First, Kohl’s has created a "smaller, more nimble" 35,000 square foot prototype. Kohl’s average store size is 90,000 square feet.
Speaking last week at the WWD Apparel & Retail CEO Summit, Kevin Mansell, Kohl’s chairman, CEO and president, said the smaller stores will allow the department store chain to reach underserved markets.
He said, "Sometimes they are small markets that we just can’t economically figure out how to make a 90,000 square foot store work. I think also, in some cases, they are going to be very dense markets where we can drop a 35,000-square-foot store into it and reach a whole bunch of consumers in a trade area that otherwise, economically, we just couldn’t make work."
Mr. Mansell admitted it’s "going to be a challenge" to bring the Kohl’s experience to a format half its typical size and said technology will play a role. Five to ten smaller stores will open in 2016.
Kevin Mansell speaking at the WWD Apparel & Retail CEO Summit – Source: Kohl’s
While Target and Walmart have been getting attention for opening smaller stores, it hasn’t been a major trend among department stores.
Second, Kohl’s Off-Aisle concept, which was piloted in one location in New Jersey this year, will add two more locations in 2016. The 30,000-square-foot concept features returned merchandise at deep discounts.
Speaking on the retailer’s third-quarter conference call, Mr. Mansell said Off Aisle was "originally conceived as a way for us to improve the valuation on our returns." Returns have increased as a percent of sales with many online sales being returned to the store.
"When we looked at that, the potential profit pool for managing what we get for those returns was pretty significant," said Mr. Mansell. Off-Aisle will also allow Kohl’s "to learn more about the off price business in general."
Finally, Kohl’s will be opening outlet stores under some of its proprietary brands. The first will be Fila, for which the chain holds exclusive rights for basic apparel. Ten to 15 Fila stores will open in spring 2015.
Mr. Mansell told Fortune that many of its private label or exclusive brands — also including Croft & Barrow, Apt. 9 and Sonoma — are prominent enough to stand on their own without being in a Kohl’s store.
- Kohl’s Announces Evolution of its Multi-Year Greatness Agenda Strategy – Kohl’s
- Greatness Agenda Update WWD Apparel & Retail CEO Summit – Kohl’s
- Kohl’s to open smaller stores and outlets in new turnaround moves – Fortune
- Kohl’s new concept features returned merchandise – RetailWire
- Kohl’s (KSS) CEO Kevin Mansell on Q2 2015 Results – Earnings Call Transcript – Seeking Alpha
Discussion Questions
Which prototype — smaller department stores, Off-Aisle or outlet stores under proprietary brands — offers Kohl’s the greatest potential for success? Which ones make the most sense for competitors to emulate?
Poll
BrainTrust
I think all three concepts have merit, and I salute Kohl’s for stepping outside the comfort of a big box format. Of the three formats being tested, the Off-Aisle would seem to have the best chance for success. Consumers are hungry for value, and if Kohl’s can offer quality merchandise at deep discounts it should resonate with consumers.
I like the smaller stores, assuming they can still have a good enough assortment to make them worth visiting. Seems like that would be filling a niche, whereas the other two concepts don’t have that much consumer appeal to me.
The Off-Aisle concept has a great chance at becoming a must-shop place for many Millennials and Boomers. Kohl’s is Kohl’s. Big or small the mix will be similar. The only action idea they missed is “Kohl’s Klothes Only” — a store without all the kitchen junk.
Of the three concepts I believe Off-Aisle has the best chance of success.
Consumers are still looking for bargains. We continue to see growth in the “outlet” mall segment even though most people understand that the items sold there were likely manufactured to lesser standards than the brand name might imply. With Off-Aisle Kohl’s will be selling the same quality merchandise that it does in its stores. This will work as long as they carefully monitor the returned merchandise.
I like the Off-Aisle concept for smaller stores. I also think there could be all apparel smaller stores that appeal to people who might buy the exclusive brands for apparel, but are not the typical discount shopper and don’t have the energy to wade into a 90,000 square-foot store with everything. How about “Kohl’s Clubs” in nice outdoor malls?
None of these makes sense: Kohl’s already IS off-aisle, and unless they plan on taking their existing stores upmarket, the overhead of maintaining so much massively discounted merchandise across multiple outlets sounds terribly inefficient.
What I do see here is a way for Kohl’s to cling — however unwisely — to private label, though whether Sonoma or Croft & Barrow rings enough bells to warrant their own stores remains to be seen.
I like the small market stores, assuming they can fully integrated with free delivery and return to the overall system.
I also like the Off-Aisle concept. As an REI addict, I love their semi-annual “Smash & Dent” sales — a different concept of course where every REI store “opens early” twice a year to sell returned merchandise, but it supports their return policy, an important component of customer loyalty. So if the Off-Aisle concept helps to offset costs of a liberal return policy, it will be good for the Kohl’s brand.
I too agree that all three concepts have potential. My favorite is the Off-aisle. Returns have always been a great expense for retailers. This concept sounds like it might be able to offset some of that expense. I’m thinking this could even be a game changer.
I’ll put my 2 cents on it.
I especially like the smaller format stores. This will extend their market reach and introduce the Kohl’s way beyond their traditional brick-and-mortar format.
Their innovation is to be applauded … and I love that they are thinking well outside the traditional box. (Guess that’s what we ALL do here in Wisconsin!)
I’m curious how people who think Macy’s was too downmarket to have outlets feel about this. I should think their demographics are quite similar. But regardless, this sounds very much like the ideas we’ve heard from Walmart, and Target and … just about everyone (or so it seems); evidence of market saturation.
Definitely think the move to open ten to 15 Fila outlet stores is a great way to capture the athleisure shopper. These stores can carry fast moving trends in basic apparel for women. Coupled with solid digital initiatives, such as the improved mobile app and online purchase with in-store pickup, these Fila stores hold a lot of promise.
I view Kohl’s to be already off-aisle and outlet style already, not sure how that would work. the smaller stores would go well into downtown areas like where off 5th and Nordstrom Rack is going into to compete in that space. Their private label items could potentially be a success since they do offer certain styles that are not covered by other brands.
Here’s my free idea for Kohl’s and any other interested retailers.
A small store that focuses on career-wear with in-store “style experts” that help women build new “capsule wardrobes” for every season.
Capsule wardrobes have approximately 30 pieces — imagine a shopper purchases 2/3 of them in your store 4x per year. I don’t know what Kohl’s piece per customer expectation is, but 80 new pieces a year seems pretty good.