Photo: Kohl’s
Kohl’s CEO rejects department store tag
In an interview with The Wall Street Journal, Michelle Gass said Kohl’s bears little resemblance to struggling department chains (include your list here). She believes the company’s success is largely a result of coming up with different solutions to the same challenges faced by every other retailer in the market.
Ms. Gass, who became CEO of Kohl’s in May, told the paper that the company’s management team doesn’t “think of ourselves as a department store.” She pointed to location (Kohl’s operates standalone stores outside of malls) and layout (a racetrack design with checkouts at the front) as distinguishing features from rivals that operate department stores.
While others have closed stores in large numbers to reduce costs, Kohl’s has focused on repurposing its sites to reduce its footprint while bringing in complementary retailers to offset space costs. Earlier this year, Kohl’s announced it had reached an agreement to reconfigure between five and 10 stores so that it could lease adjacent space to Aldi, the hard discount grocery chain.
In her interview with the Journal, Ms. Gass explained her company’s willingness to work with Amazon.com. Kohl’s is continuing to test dedicated Amazon shops inside 30 of its stores and accepting product returns bought on the e-tail giant’s site at 100 locations. The test stores are located in the Chicago and Los Angeles markets.
“Based on the volume of returns we are getting, people are using the service,” Ms. Gass said. “What we are trying to determine is, of the people coming in and returning something from Amazon, how many are crossing the aisle and buying something from Kohl’s?”
In another zig where others zag approach, Kohl’s decided to get out of the gift registry business. Ms. Gass told the Journal that she didn’t think it makes sense for Kohl’s to offer a service if not distinctive from what’s available elsewhere.
“We’ll probably bring it back someday, but it will look a lot different,” she said. “When you do things like that, it forces you to think about making a sea change versus an incremental change.”
In August, Kohl’s reported that its second quarter same-store sales were up 3.1 percent, better than the 2.7 percent gain expected by analysts. The retailer’s earnings were up 40 percent year-over-year for the quarter at $1.76 per share, above the consensus $1.64 forecast by Wall Street.
- How Kohl’s Is Succeeding Where Other Chains Haven’t – The Wall Street Journal
- Kohl’s shares slide despite topping Wall Street earnings, sales expectations – CNBC
- Aldi to open grocery stores next to Kohl’s – RetailWire
- Kohl’s to accept product returns for Amazon – RetailWire
- Is Kohl’s giving away the store to Amazon? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: What do you think are the primary reasons for Kohl’s success at a time rivals are struggling? What will management need to do to keep Kohl’s business on the upward curve?
Poll
BrainTrust
Min-Jee Hwang
Director of Marketing, Wiser Solutions, Inc.
Jasmine Glasheen
Content Marketing Manager, Surefront
A much stronger assortment presented in a more compelling way is a key reason for Kohl’s success with customers. Activewear has been a particular area of strength which, given the general slump in the sector as a whole, is positive. Brands like Nike, Under Armour, and Adidas are proving popular.
These things have been underpinned by changes to the rewards program which have been rolled out across a number of markets, and better presentation in stores with a more localized assortment. Trials with Amazon have made a smaller, but positive, contribution and show Kohl’s is being innovative.
It would be helpful for Kohl’s to define what it is rather than what it isn’t. I say that from a purely neutral perspective – not as a jab. If Kohl’s truly is an alternative to traditional department stores then what is that alternative and how does it guide decisions? Kohl’s deserves credit for stepping out but without a clear mission, runs a risk of darting at shiny objects. Kohl’s is still a convenient alternative to malls and lifestyle centers in the markets in which it operates and plenty of shoppers like shopping in Kohl’s stores. The Amazon hook-up makes sense for Kohl’s customers who might be more comfortable having digital brought to them within a familiar environment rather than the reverse. On the brand front, Kohl’s has shown more restraint and been more thoughtful with brand launches than J.C. Penney and Macy’s but will still need to keep its portfolio fresh in order to remain competitive.
The reasons presented by Michelle Gass are certainly contributing to Kohl’s success, but the big ones — assortment and price — remain the biggest drivers of success, in my opinion. Kohl’s does a good job providing value in this regard to its customers, as it can easily compete with Target and Walmart when it comes to apparel and home goods.
Kohl’s willingness to lease square footage to what they determine to be complementary, noncompetitive brands and retailers such as Aldi helps defer cost and provides convenience to shoppers. Both of these bring value to Kohl’s customers while expanding their exposure to a broader shopper community. Their embrace of Amazon is a brazen experiment that may prove to be genius — that has yet to be determined — but Kohl’s is experimenting with bold initiatives beyond just talking about them in the executive suite.
Kohl’s has successfully leveraged its loyalty program alongside other unique added value (Amazon returns, etc.) to keep bringing shoppers into the store. They really have the feeling of being closer to a fast fashion brand that happens to carry non-apparel merchandise rather than being a full-line department store. The formula is working for them and it will be interesting to see where Ms. Gass can take this going forward to further distinguish the chain from the department store segment.
It’s interesting to read that its CEO doesn’t think of Kohl’s as department a store because I never have either. To me, Macy’s and Bloomingdale’s are department stores, Kohl’s has lots of departments but it’s an entirely different retail animal.
As retail analysts, we all like to talk about Kohl’s strong merchandise assortment, how its layout makes the store is easy to shop, and its legendary sales and promotions, but to the consumer it’s Kohl’s Cash that makes the store a stand out. People rave about what they saved shopping at Kohl’s, there are “How to Save Even More at Kohl’s” and “Kohl’s Hacks” articles all over the internet. This ability to save has created fiercely loyal customers who will always choose Kohl’s first.
Taking Amazon returns (versus CVS customers at Target), groceries from Aidi, and having a rack track design seem to build upon the Target model without the private brands. An advantage for Kohl’s is a deeper home assortment and athletic brands. Avoiding the mall for drive-up home and apparel shopping is a good thing. Missing from the equation is the novelty of private brands, a la Target. Both have merit. The question, over time, is will management keep building upon what could/will make Kohl’s special in the marketplace?
Starting with my usual full disclosure (I worked for Kohl’s from 1982 to 2006), it’s important to consider that Kohl’s has always been a hybrid retail concept — not a traditional department store in the sense of Macy’s, not a full-line discounter with the variety of Target, not an off-pricer like TJX even though its formula is built around value. So — to Carol’s point — you can define Kohl’s by “what it’s not” more easily than “what it is” because there isn’t another retailer exactly like it.
But the customer seems to get the Kohl’s formula, which is built not only around value but also around a smaller footprint located off-mail with the expense savings offsetting those sales promotions. And the blend of national and private brands seems to appeal to a “middle market” that hasn’t totally disappeared in the face of the barbell effect.
Has Kohl’s made mistakes? Sure, including at times swinging the pendulum too far toward private brands and offering too much duplication of assortment in those small stores. But the company appears to be able to correct its errors and is certainly on top of both the active trend and the move toward omnichannel retail.
It’s not architecture that is differentiating Kohl’s from other stores. It’s thinking. The embrace of Amazon and Aldi is huge. The synergies, the logic … the thinking is totally customer-centric.
Kohl’s is owning the niche that could have been J.C. Penney’s. Tons of Kohl’s 1,200-plus outlets are located in areas that aren’t as dependent on dwindling mall traffic, where Macy’s and the like are suffering. This also is a boon to the Amazon returns strategy, as many suburban shoppers can kill multiple birds with one stone.
Kohl’s is giving up space to Aldi for the attraction of Aldi’s customers. If Kohl’s sales productivity per square foot was wonderfully high, I don’t think they would so easily give up the space to cut down their own footprint. Best Buy has already released part of their store (in my neighborhood) to Aldi. That being said, I absolutely agree with the BrainTrust members who have stated that the promotions and Kohl’s cash are the hook! That is absolutely spot on. One suggestion for Kohl’s holiday business: focus on a little more associate presence and customer interaction on the sales floor, and especially the fitting room areas. (Have you seen that stack of tried-on/declined garments piled high at the fitting room entrance?)
Kohl’s strong loyalty program and feature rich mobile app are big drivers of Kohl’s success when there competitors are struggling. Yes, they are experimenting and testing new store formats and collaboration with Amazon, but I don’t think those initiatives have made a noticeable impact on their success, yet.
What keeps customers coming back and spending more is the convenience and stickiness of their mobile app. The mobile app combines the loyalty program, coupons, alerts on sales, in-store price scanner, camera (snap and shop) and payment (Kohl’s Pay) on one feature rich app.
Kohl’s also works the community-first angle in a way no other department store has. Coming from Kohl’s hometown of Milwaukee, I can tell you Kohl’s has an entire sponsored section of the Milwaukee Art Museum where schools are brought in to create their own art and have interactive experiences with existing pieces. Kohl’s has a kid’s tent at every major community fair in Wisconsin and very publicly sponsors charity runs near the lakefront (we’re talking banners on every tree for a month type of publicity here).
The resounding message from Kohl’s philanthropy is “we care about kids and families like yours.” The Kohl’s cash and value incentive is just adds in the thrill of the hunt for moms and grandmas who are armed with credit cards and ready to throw down in the name of Midwestern family values.
“Kohl’s success at a time rivals are struggling…” And this is based on a single quarter of low-single-digit comp growth? Looking back on the past few years, I see a mix of (low-single-digit) comp gains and losses, much as with rivals like Macy’s and JCP. (Indeed it seems to be a habit to pick whatever chain had the highest comp that quarter and proclaim that they’re succeeding against others.)
But that having been said, they ARE a major player — indeed their overall sales are similar to Macy*s (just with much less drama, it seems), so we ask why. Flipping thru their Fact Book, one finds out quite quickly that they’re all about: compact (~100Kgsf) — aka “easy to shop” — stores filled with brand name merchandise. Apparently it’s a clarity that people like.
The wisdom of partnering with Amazon? We’ll just have to wait and see.
Good management helps, no doubt. Being good at running a company is crucial. No margin for error. That said, when I read this article something else stands out. Kohl’s is not about competing to be best. If they did, they would be going head to head, and doing what others are doing, just trying to do it better. Instead, they look like they are competing to be different. Different stands out. Different attracts attention. And, different can give you a different type of competitive advantage. Maybe that’s one reason they are on the “upward curve.”
Kohl’s is definitely not a department store, or at least, not a traditional one. Perhaps Kohl’s is what will survive after poor JCP (sorry, personal bias — I really am rooting for JCP), and even Macy’s are long gone.
Kohl’s has great management, and the ability to think different is such an advantage. I think the hookup with Amazon will be right in the long run, and the space leasing to Aldi — genius.
Also, there are a lot of people these days who do not want to go into the mall. I have interviewed a number of people who go into an anchor, then leave, and drive around to another anchor and go in there. Kohl’s avoids all that.
And I Agree with Mr. Riley — they are in the niche that could have been JCP.
And as Ms. Bender noted, their rewards have created a very loyal and satisfied group of customers who love to tell you how great the rewards are — “Kohl’s Cash, Kohl’s Cash, Kohl’s Cash!” People L O V E it!
Their rewards, convenience, clean and easy stores, and above all of that (or because of all of that), their attention to the customer, as Mr. Sward said, has propelled them into a true “class by themself”!