Photos: Getty images; At Home
Should Kohl’s buy At Home?
Kohl’s is holding preliminary discussions to acquire At Home, the home decor superstore with 188 locations, according to Reuters.
The acquisition would help Kohl’s, with more than 1,100 locations, diversify its business away from the department store model and apparel category and possibly help expand its home category business within its own stores.
Home accounted for 19 percent of Kohl’s sales in 2018 and has been a top performing category over the last two years.
At Home claims to offer the largest assortment of home décor products (more than 50,000 unique items per store) among all big box retailers due to the size of its stores, which range from 75,000- to 165,000-square-feet. Over 70 percent of its products are unbranded, private label and drive attractive price points. The retailer’s “Best Price Every Day” ads compare At Home’s prices to similar items at Wayfair, Michael’s, Pier 1, Bed Bath & Beyond and Home Depot.
Currently in a fast-track expansion mode, At Home plans to open 32 stores this year and sees the potential for 600 locations in the U.S.
At Home currently does not offer e-commerce, but said it may in the future. In its 2018 10K filing, At Home points to findings from Cooper Roberts Research last year that showed “while home décor shoppers may prefer browsing online, they value low prices, a wide selection and the opportunity to experience the look-and-feel of products in stores before making a purchase.”
The Reuters report indicated that At Home, which went public in 2016, began exploring a sale a few months ago due to poor stock performance. Sources indicated the retailer is in advanced discussions with private equity firms, including Hellman & Friedman.
Kohl’s introduction of Amazon return centers indicates management is open to reinventing its business model, although its last significant acquisition was 31 Mervyn’s leases following that chain’s bankruptcy in 2008. Increasing competition in the home goods space is also coming from Amazon.com, Walmart and Target, which all launched furniture and home goods private labels in recent months.
Discussion Questions
DISCUSSION QUESTIONS: Do you see more pros than cons in Kohl’s acquiring At Home? What opportunities or challenges do you think a deeper foothold in the home category would present to Kohl’s?
Poll
BrainTrust
Phil Rubin
Founder, Grey Space Matters
Bob Phibbs
President/CEO, The Retail Doctor
Step one: Kohl’s buys At Home. Step two: Amazon buys Kohl’s.
I always applaud evolutionary thinking in action. This makes total sense to me. Expanding and growing in a way that allows the retailer to become the go-to outlet for so many of the family’s needs. I don’t see this so much as a move away from the department store model as a complete redefinition of the model. One retailer serving the family with a full range of products. And if they do that with more than one brand name on the front door, so be it. The data mining opportunities will be significant.
I see little logic in this move. Sure, it will give Kohl’s a stronger showing in the home sector. However, there are probably easier ways to attain this and At Home is not without its issues.
From what I understand, many stores aren’t all that profitable. This is a function of the fact that they are big boxes with loads of inventory and poor sell-through rates, particularly in newer stores. Stores are also too much of a warehouse style “category killer” format when what people really want is more inspiration and ideas.
I am not clear on what Kohl’s would do to solve these issues. It’s not like they could merge the format into their existing stores, it’s far too big of a concept. And you could not put Kohl’s non-home stuff in At Home as it would not make sense. Driving e-commerce sales in home is an area they could focus on, but there’s a stack of competition from Walmart to Wayfair, and they arguably don’t need At Home to do this.
All in all, I’m just not seeing the value in any potential deal.
I agree with everything you said, Neil.
At Home is a giant warehouse with tall fixtures that are loaded with cheap, imported things you might want in your home. There’s no romance and very little visual merchandising. And other than the fact that it sells things for the home, you can’t really compare At Home to HomeGoods or Pier 1 because it’s not a place to go for inspiration. And home stores should provide inspiration.
Spot on, George! We have some consumer research on At Home and reactions are very mixed. People do appreciate the huge range, but many also find it totally overwhelming and dislike the amount of work they have to put into getting what they want. Also, the lack of inspiration really grates on a lot of people.
What Kohl’s brings to At Home is the potential for increased brand awareness by leveraging its five to one store count. At Home offers Kohl’s that chance to provide a broader selection of low-cost home goods.
The question is, will this be an opportunity for Kohl’s to diversify and grow or will the increasing competition in the home goods market make the acquisition be an anchor that weights Kohl’s down?
Kohl’s is in the process of downsizing (or “right-sizing”) many of its stores, at the same time that it expands its footprint in active-related categories like athletic shoes and workout wear. And the addition of Amazon return desks further squeezes the space for its home store — largely focused on kitchen, bed and bath rather than decor. (I’ll add my usual disclosure here, that I worked for Kohl’s from 1982 to 2006.)
So an acquisition like At Home allows Kohl’s to expand into a lot of new businesses — especially if adding e-commerce offers some competition to Wayfair. A word of caution, however: It’s a small sample size, but the one At Home store that I’ve visited has a lot of room for improvement on the “store experience” front.
It’s a smart move for Kohl’s to diversify given its momentum lately. Its partnership with Amazon is strategic and assuming it leads to an acquisition, Kohl’s would be smart to expand its footprint both in terms of doors and businesses.
Given what’s happened to traditional department stores, Kohl’s occupies a nice middle ground between the legacy DSs and the big box mass merchants. That will fit Amazon nicely so it’s going to be really interesting to see how this plays out.
Is this Option A or Option B?
Option A: Former Wall Street darling has run out of runway and needs to make a move in an attempt to satisfy shareholders.
Option B: Strategic move ahead of an acquisition by Amazon.
If it’s Option A, I’m not sure I would want to be moving into a space where the stores are huge and shopping frequency, sales per square foot (still relevant since they have no e-commerce) and inventory turns are low. And it’s difficult to think that Kohl’s would be counting on Option B. For those that think this is Option B, does Amazon want these assets? Just curious.
Love to see Kohl’s thinking beyond the box and imagining how/where to bring new value to its patrons. Given the weak performance of many of the traditional department stores, with this acquisition Kohl’s would have the opportunity to stake claim to the value side of the equation and expand its penetration within the households that already favor Kohl’s.
I think this is only the beginning of their continued reinvention and purposeful expansion. Another great example of uncommon collaboration and fresh ideas!
Adding a home goods store will help Kohl’s diversify its portfolio with an attractive adjacent product category which is currently 20 percent of its business today. It will enable Kohl’s to infuse itself with some of the private label home goods products from At Home to expand this product category with potentially higher-margin products.
Kohl’s can use its e-commerce platform to help At Home launch e-commerce to expand sales as well. The success of Wayfair is a clear bellwether and with Kohl’s Amazon play it would be a smart move to add e-commerce to the At Home mix. This seems like a smart addition for Kohl’s.
Smart move for Kohl’s to look at diversification but I don’t think this is the way to go. Kohl’s has built its business on great merchandising and smart product mix. At Home just seems to have lots of stuff at a cheap price.
With the increased pressure on the home goods market from both the web and Target and Walmart, this is not where I would invest my resources.
What if the question had been “should 7-Eleven buy At Home?” or Shell Oil? After checking your calendar to confirm you weren’t still in the ’60s (conglomerate boom) you’d likely say “no, it really adds nothing to their core business and will be a distraction.”
Obviously that’s not quite the case here. After all, Kohl’s sells domestics already, but I’m not clear on the motivation: if they think home goods are a growth field, then why not expand their current offerings (their own stores often have excess space they’re trying to repurpose; wouldn’t this be a logical choice?). OTOH, if the thinking is “we sell a few pillows, they sell a lot of them, it’s a natural fit.”
I think they could be overestimating their expertise in the field. Home goods is a crowded (i.e. highly competitive) field in an industry that’s increasingly finding there’s too much space in use … a big red napkin being waved in the air, so to speak.