Kohl’s to share space with grocery store partner(s)

Photo: Kohl's
Jan 11, 2018
George Anderson

Kohl’s CEO Kevin Mansell says the retailer has “identified a whole list of partners” from the convenience and grocery channels that it believes would be a good fit to fill space left in about 300 stores it has “right-sized” over the past several years.

In an interview with CNBC at the ICR conference this week, Mr. Mansell said his company had found the footprint it needs to operate most effectively, which has opened up space within many of its big box locations. Kohl’s is looking to lease the remaining space within these stores to partners with businesses that will drive more frequent traffic to the locations. In essence, Kohl’s is looking for partners that would turn its physical locations into supercenters, of a sort.

Kohl’s, which has come off a strong holiday season in which it posted a 6.9 percent gain in same-store sales, is looking to push its advantage while many of its rivals lag behind. The company’s test of accepting returns for items purchased on Amazon.com in 82 of its locations in Chicago and Los Angeles as well as opening Amazon shops within 10 stores in the same markets has led to speculation it might seek to partner with Whole Foods.

In May, Mr. Mansell will step down as CEO of Kohl’s, a position he has held for a decade. He will be replaced by Michelle Gass, the chain’s chief customer and merchandising officer. Ms. Gass joined Kohl’s in 2013 after more than 16 years at Starbucks in a variety of executive roles including president of the coffee giant’s business in Europe, Middle East and Africa.

DISCUSSION QUESTIONS: Do you think Kohl’s is on the right path with its plan to lease space within its stores to grocery and/or convenience store partners? What do you see as the challenges with such an arrangement? Are there companies that you think would make ideal partners for Kohl’s?

"I applaud the deliberate strategic decision-making and emergent testing and learning they have been doing."
"Are there enough Kohl’s out there where this doesn’t face an established competitive situation? I don’t know the answer to that one."
"I’m not certain grocery is the right partner (okay, I am certain grocery is NOT the right partner) but finding partners to expand importance IS right."

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26 Comments on "Kohl’s to share space with grocery store partner(s)"

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Ken Lonyai

This one is very hard to predict and very dependent upon location, location, location. For example: are there competitor grocers nearby? If so, a small-sized grocer in Kohl’s will find it very hard to compete. Plus, there aren’t too many occasions where someone will choose a store to buy clothes because getting milk and eggs will be convenient too. So, overall, I see this as a stretch, that probably won’t be good for most tenants in the long-run and a further dilution of Kohl’s brand identity, which has started already via the Amazon partnership.

And as an aside: if Kohl’s wants to be acquired by Amazon, as has been postulated, having unrelated grocers in their footprint might quash their appeal via the Whole Foods conflict.

Dave Bruno

While the brand marketer in me has some concerns about this idea, the revenue generator in me thinks this is worth a shot. And I think, at least at first blush, the revenue generator in me loves the idea of driving traffic and visits (and making the store more relevant) more than the brand marketer in me worries about brand confusion.

Phil Chang

This is a weird one. I like that Kohl’s has right-sized their stores. I like that they want a traffic-driving partner to optimize the experience and help drive more consumers to their retail locations.

Grocery? And to spin into a supercenter? That’s weird. A local market might be more interesting. Local chefs cooking up some-kind-of-wonderful might be a really cool idea for starters, or pop-up designers that use products from the store to help consumers maximize their purchases is another. Perhaps it’s just wording but supercenters isn’t the way to go.

Shawn Harris

The shifts in retail are structural, not cyclical. This move by Kohl’s would be a bold structural shift. I applaud the deliberate strategic decision-making and emergent testing and learning they have been doing.

Sterling Hawkins

I’m with Shawn — actions are required for Kohl’s to make a structural shift and they deserve a nod for making some tough (but necessary) decisions. It looks like they have a culture developing to actually drive change; an increasingly necessary component to stay relevant with all the innovation happening in retail.

David Livingston
9 days 9 hours ago

When I worked for Roundy’s we discussed doing a combo store with Kohl’s in the early ’90s. Of course it never happened. If you think Target is horrible at grocery, just imagine how bad Kohl’s would be. I think it would be on a Sears Grand-esque level. Kohl’s could not even get a coffee shop to work. Kohl’s needs to focus on being Kohl’s and I cannot see anyone who could be a good partner.

Joy Chen

Kohl’s strategy to share space is a short-term solution not a long-term sustainable strategy. It will improve traffic in the short-term but not provide a sustained differentiated positioning for Kohl’s long-term growth. Retailers that makes sense for Kohl’s would be grocers that have strong awareness where Kohl’s stores are located.

Anne Howe

This only makes sense if they are posturing for an acquisition by Amazon. Then, they could easily outpost 365 brand pantry staples!

Stuart Jackson

I’m not surprised that Kohl’s has decided to use the space in this way. There has been a surge of such co-location partnerships over the last year in the U.K., albeit via acquisitions, and it seems to tap into the customers’ growing desire for convenience.
Here in the U.K., supermarket-chain Sainsbury’s acquired the parent company of iconic homeware brand Habitat and have begun opening mini-stores inside their supermarkets.

These two brands are a great fit — they’re both going after the same target market, middle-class shoppers, and they share similar values in terms of quality. And I think that’s the key for Kohl’s going forward. They must ensure that whoever they partner with shares their customer base, ethos and values. If they can do that then it’ll be a very lucrative move.

Adrian Weidmann

Sharing (sub-leasing) existing real-estate makes perfect sense. This is another form of the store-within-a-store concept. A Kohl’s department store and a grocery store makes a great co-habitation model. It provides convenience for shoppers of both brands. Ideally, the brands align with compatible shopper demographics. I would imagine here in Minneapolis, Kohl’s and Cub Foods would make a great partnership. I would imagine we’ll start seeing more of these alignments in the months and years to come. Add restaurants to these arrangements as well. The lines between, retail, restaurants and grocery will continue to blur and dissolve.

Brandon Rael

There has to be some sort of logical synergies for a retailer such as Kohl’s to make such a bold move. I have to question the logic on this one, as the core customer shopping in Kohl’s isn’t necessarily going to that store to shop for groceries. Right-sizing their store footprint is the way to go, however, the grocery, produce and perishables sector is a challenging one, and may prove to be overwhelming.

A viable option that Kohl’s could consider is a marketplace kind of setup, where local food producers, farmers and craftspeople can expand their reach via a pop-up-like experience within the store.

Dave Wendland

As I’ve shared in comments before, I’m a HUGE proponent of store-within-a-store concepts. This move, however, seems one that needs thorough testing and consideration or Kohl’s may become mired with the same immovable weight as a Kmart. Sensible curation of the right mix of products may work … Then, again, why not a technology-driven solution that provides store-within-a-store without distracting the primary goal of Kohl’s? I’m scratching my head a bit about this move yet I applaud Kohl’s willingness to think outside their four walls.

Ben Ball

It sounds good and it might work. No matter which, congrats to Kohl’s on their continued willingness to explore, test and change. What gives me some pause is this — adding FMCG goods to what are essentially dry goods stores to add impulse sales and draw traffic hasn’t always worked so well. Walgreens scaling back emphasis on low-margin food/bev in favor of higher margin cosmetics and beauty comes to mind. And that may be complicated by the fact that it sounds like shoppers won’t find grocery products in every store. That may make it hard to convince shoppers to look to Kohl’s for grocery — similar to the problems Target faced in their early forays into food.

Phil Masiello

Food-focused lease space is smart because of the high number of trips those concepts generate. You may go to a convenience store three or four times a week, a grocery store one to two times and a Kohl’s once a month. So it strategically makes sense to get more foot traffic. Grocery stores make more sense than convenience stores in my mind.

The challenge is always whether or not it enhances the brand. The wrong operator could reflect poorly on the entire store.

The Amazon shops are a very smart move to get new customers into a Kohl’s. I think going after those types of relationships is a smarter move.

Neil Saunders

Kohl’s is right to identify the need to cut back on space. It is also right to recognize the need to introduce things into stores that can help drive customer traffic. However, what’s right depends on each store and location. In all cases, the golden rules are to partner with brands and concepts that are relevant to Kohl’s shoppers and not to add things which could detract from the Kohl’s experience. Simple to understand, a bit more challenging to execute.

That said, it seems a shame that Kohl’s focus is on third parties. It’s an easy option, but not one that will provide sustainable differentiation. Is Kohl’s incapable of developing its own offers, ideas and concepts to occupy excess space?

Zel Bianco

Bad move. Some ideas should just be shut down before they do more harm than good. Let’s see; I need some socks and t-shirts, and I might as well pick up some eggs with that while I’m there. It will hurt the brand. Kohl’s is doing some good things. This is not one of them.

Seth Nagle

We’ve seen digital brands have success in small storefront spaces and I think this could be another potential opportunity for Kohl’s. Having rotating partners would keep shoppers happy and create some additional excitement.

Bringing in additional partners is going to require more resources to manage the project especially in the infancy stage where they can’t afford to drop the ball.

Nikki Baird

When you look at most discount retailing, it has some combination of grocery and soft goods. Target, Walmart, Sears/Kmart … Kohl’s plays in similar (maybe slightly higher) price points, going after the same shoppers. But they don’t have the assortment to drive the frequency of purchase you get from having groceries. Target has struggled to make grocery work, Walmart has struggled to make fashion work and Sears, well …

Anyway, I think this is a smart move. It addresses a hole in the assortment while keeping the experts doing what they’re doing — Kohl’s on the fashion front, partners for the other stuff. I think a harder question is about Kohl’s location strategy and whether this will be net-new (and enough of a draw as a stand-alone format) or redundant (where Kohl’s has located in a strip mall area where there is already a national grocer, maybe even one of their partners). Are there enough Kohl’s out there where this doesn’t face an established competitive situation? I don’t know the answer to that one.

Richard J. George, Ph.D.

I’m not convinced this is the best move for Kohl’s, even in a lease-versus-development mode. Kohl’s appears to have omnichannel figured out as evidenced by its recent performance. The question is, will Kohl’s customers give it permission to house these other retailing options? In other words, what business is Kohl’s in? I am reminded of the saying “you can play football and baseball but not at the same time in the same stadium.”

Kenneth Leung

I guess it is the details I am curious about. Are the stores still going to have Kohl’s as the banner up front or are these going to be co-branded stores? Grocery stores have done well leasing space to banks … The grocery/discount store combo would put it in the same value proposition as Target stores. A lot depends on the branding, merchandising and proximity to other grocery stores.

Tom Dougherty

I’m not certain grocery is the right partner (okay, I am certain grocery is NOT the right partner) but finding partners to expand importance IS right.

With the current state of retail, I applaud every executive that is willing to rethink the model from the ground up.

Rich Kizer

Kohl’s is absolutely correct in analyzing square footage productivity, and adjusting where they can. However, the space for food in a Kohl’s store? I think they better hope a lot of people accidentally bump into that area, because no one, I believe, will plan to go to Kohl’s to pick up that loaf of bread and jar of pickles. Sub-leasing space, brilliant! But come up with a partner who enhances your brand image and generating foot traffic while meeting customer needs more frequently. Just my take, for what it’s worth.

Ricardo Belmar

Right-sizing their space seems to be working for Kohl’s and at the end of the day, this latest move to add grocery and convenience items is a play for driving traffic into the store in the hopes customers buy some Kohl’s merchandise while they are there. Similar to their efforts at adding Amazon returns and merchandise into their footprint, if Kohl’s starts reporting sales increases (as they most recently did) then we’ll have to accept that the strategy is working. Kohl’s has recognized they must transform as a retailer as the industry is transforming — otherwise they become irrelevant.

Craig Sundstrom

Most of the Kohl’s I know are in regional malls, or semi-isolated stand-alone locations, so it’s hard to see a convenience store making much sense.; a grocery is perhaps a little better (tho far from a natural fit IMHO).

In short, this isn’t an idea I would have advocated, but I’m assuming management knows what they’re doing … they have a pretty good track record so far.

Cynthia Holcomb

Kohl’s with groceries, they mean like Target groceries? Somehow, buying fresh produce and meats in an apparel, soft goods environment steals one’s taste buds. Ask Target. I do think adding convenience items would be interesting if done with a “fresh” viewpoint, not a commoditized offering, but through the filter of Kohl’s POV offering. An opportunity to add new depth to the Kohl’s brand, in an authentic, modern twist to the brand.

James Nichols

I applaud their willingness to try new things. This is simply another flavor of the collaborative economy. The parallels to things like Uber Eats are clear. Again, Kohl’s is showing itself to be more imaginative and bold than many in the industry.

"I applaud the deliberate strategic decision-making and emergent testing and learning they have been doing."
"Are there enough Kohl’s out there where this doesn’t face an established competitive situation? I don’t know the answer to that one."
"I’m not certain grocery is the right partner (okay, I am certain grocery is NOT the right partner) but finding partners to expand importance IS right."

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