Is Kohl’s a stronger retailer as it reopens stores?

Discussion
Source: Kohl's/Facebook; Photo: Getty Images/niknikon
May 21, 2020
George Anderson

Kohl’s stores went largely out of business on March 20 as it closed all of its locations across the country. The negative impact of having to take that step showed up in the retailer’s first-quarter results, but the news isn’t all bad as Kohl’s came out of the quarter with insights its management believes will make it a stronger company going forward.

The retailer’s net sales fell 43.2 percent during the quarter. CEO Michelle Gass and CFO Jill Timm remarked several times during Kohl’s earnings call with analysts this week that store closures hit results in a big, bad way.

Gross margin fell to 17.3 percent during the quarter, down from 36.8 percent the year before, as Kohl’s aggressively promoted merchandise to clear inventory and took on the added costs of shipping online orders, which were up 24 percent for the period.

Kohl’s management felt good about the retailer’s financial position coming out of the first quarter. Furloughing employees, an unwanted but necessary move, helped cut costs significantly. Ms. Timm said Kohl’s was able to pull back product orders for March and April, reducing costs and inventory over the same period last year.

Kohl’s digital business grew 60 percent in April as closed stores shifted purchases online. “All of the key performance metrics were positive including traffic, conversion, average unit retail and units per transaction,” said Ms. Gass. “And we were pleased to see more new customers and younger customers shopping on our digital platform.”

More than 40 percent of all digital orders were fulfilled by stores for home delivery or pickup.

Ms. Gass noted a marked increase in pickup orders. “While we have been testing this capability in a couple of stores, it was still very new to us,” she said. “As the health crisis unfolded, our team swiftly put a strategy together and launched at scale very quickly.”

Kohl’s has reopened roughly half its stores since May 4. Store pickup will continue to be offered to customers and locations are also resuming the Amazon.com returns program. “We expect to see traffic build as customers return items purchased over the last several months,” said Ms. Gass.

DISCUSSION QUESTIONS: How would you assess how Kohl’s has managed its business during the coronavirus crisis? Do you think it is reopening stores in a stronger or weaker competitive position relative to its retailing rivals?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"They have lost tremendous revenue, and building the company back up will take some time, but I believe they also learned a bit more about themselves and their customers. "
"Kohl’s will recover, but it won’t be easy: Apparel and soft home may feel especially discretionary in the face of job losses, food shortages and public health crisis."
"If the speculation is true that Amazon is looking at picking up JCP at a bargain price, looks like Kohl’s C-Level exit strategy hopes just got dashed."

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16 Comments on "Is Kohl’s a stronger retailer as it reopens stores?"


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Suresh Chaganti
BrainTrust

Kohl’s seems to be positioned better than most. For one, it had much stronger e-commerce operations before the pandemic. Second, its arrangement with Amazon could be of value as stores start to reopen. With J.C. Penney and other retailers more impacted and downsizing the store footprint, Kohl’s is positioned to fill the void. The insights gained during the pandemic will help drive category assortment, inventory management and forecasting.

Mark Ryski
BrainTrust

Kohl’s has done better than most, but it’s still in a tough spot. With its apparel heavy sales mix – a category that’s been especially hard hit – they are not out of the woods yet. Kohl’s strength is their stores and as they open more of them, I expect to see their results improve materially. Furthermore, since their stores’ larger footprint and mostly off-mall locations enable them to better execute social distancing. Overall, I think Kohl’s is well positioned among the most challenged retailers that predominantly sell apparel.

Neil Saunders
BrainTrust

Kohl’s managed its business as best it could, but I do not share the view that the crisis makes it a stronger company. In the first quarter, Kohl’s made an operating loss of over three-quarters of a billion dollars. And, along with other factors, this has pushed up the long-term debt by $1.6 billion. This is a burden that will have an impact on its financial flexibility going forward.

I do agree that Kohl’s is in a better position than most of its department store peers, if only because its store locations are more favorable and will be less affected by the distress at malls. The focus on activewear, which the company started some time ago, has also helped to protect sales and margins.

However, before this crisis hit Kohl’s was performing OK. It was not a firm winner. For the rest of this year, I don’t see anything to suggest that it will be a strong entity in the retail space.

Art Suriano
BrainTrust

I commend Kohl’s for weathering the storm as well as they have. Every company has been faced with unprecedented business conditions, and unfortunately they are far from over. Kohl’s showed good leadership and reacted quickly. Yes they have lost tremendous revenue, and building the company back up will take some time, but I believe they also learned a bit more about themselves and their customers.

The fact that they have obtained many new customers online is a definite benefit for them and one they can build on. Years from now, we will look at this period and all businesses, including our government, will assess if we handled it correctly and what we might have done differently. Hopefully not just companies but all of us will learn from this experience to be better prepared the next time we are faced with a global issue of this magnitude.

Dave Bruno
BrainTrust

I sincerely hope that Kohl’s is emerging from this phase of the COVID-19 crisis a stronger company, but I am not sure I agree. Without question trending younger is a great thing for their customer mix, and the bump in e-commerce business is fantastic, especially if they optimized store fulfillment and pickup processes along the way. However I have not seen evidence that the company has made any strategic moves to sustain the younger digital community they built during the pandemic. I would love to see an investment in engaging and sustaining that online energy in ways that will outlast whatever the coronavirus has in store for us in the weeks and months ahead. Then I would be more bullish on the idea that they are emerging stronger.

Dick Seesel
BrainTrust
Starting with my usual “full disclosure” (I worked there from 1982 to 2006), Kohl’s went into the COVID-19 crisis with a couple of key advantages. First, it has a very strong e-commerce business as a percentage of its total sales. Second, its balance sheet was stronger at the outset than many of its competitors — such as J.C. Penney, to state the obvious. But having to shutter 1,100 stores — without a faster response on curbside pickup — put Kohl’s at a disadvantage vs. Target over the past two months. Target’s earnings call reported strength in apparel — not just food and consumables, as you might expect — because they became the only game in town for many “soft goods” categories. Kohl’s is likely to have lost market share to Target, even if they maintained it vs. their department store competitors who were in the same boat. Kohl’s will recover, but it won’t be easy: Apparel and soft home may feel especially discretionary in the face of job losses, food shortages and an overall public… Read more »
Dick Seesel
BrainTrust

This story just broke in the Milwaukee paper, since Kohl’s is about to reopen in its own backyard (hopefully no paywall).

The most interesting angle to me is the apparent effort to “open up” the stores with more spacing between fewer fixtures. Kohl’s has not always had enough breathing room on its selling floor, so it will be interesting to see how customers respond over the long run. If it works, Kohl’s takes another lesson learned from this experience.

Shep Hyken
BrainTrust

The retail industry suffered. For the larger retailers to come out of this, they need some savvy management that has managed and controlled inventory, distribution, accounting, HR issues (employees) and more. It appears Kohl’s leadership “took the bull by the horns” and practiced some strong retailing techniques in times of crisis. We don’t have final numbers and probably won’t know for a year or so before we can determine just how well they have done. If the results are as expected, this will be a great case study for all to learn from.

Stephen Rector
BrainTrust

I think relative is the key word here versus their competition – are they better off than J.C. Penney (chapter 11), Stage (liquidation) and Macy’s (mall-based versus strip)? The answer is yes. Are they better off than TJX, Ross and Burlington? I give the advantage to the off-price companies. So there is opportunity for them, but they do need to get assortment mix correct for the future. Eliminating eight private label women’s apparel brands is one step in the correct direction.

Dave Wendland
BrainTrust

With the chain headquartered in our company’s backyard, I am a HUGE fan of Kohl’s and the efforts it has taken in recent years to remain competitive and certainly throughout the abnormalities brought about by COVID-19. That said, I’m hard-pressed to imagine any predominantly brick-and-mortar retailer — even Kohl’s — emerging “stronger” as business returns to whatever normal looks like.

The good news is that Kohl’s does have loyal, consistent customers, a fairly robust e-commerce business, it has benefited from its relationship with Amazon, and its locations are not largely mall-based (e.g., J.C. Penney-esque). The bad news is that shopping has changed forever and this requires Kohl’s to consistently demonstrate that it has taken care of its associates, protected shoppers, and created a safe shopping environment.

Overall, I’m bullish on Kohl’s ability to pivot its operation and remain a survivor.

Jeff Sward
BrainTrust

I’m stuck on how I viewed Kohl’s running of the business pre-COVID-19, which is to say — poorly. From early November to late January the aisles of the couple stores I visit were jammed with warehouse fixtures holding inventory that couldn’t be housed on regular fixtures. Bad planning, bad merchandising, bad flow, bad seasonal conversion. And that’s before mentioning e-commerce/omnichannel/BOPIS. And now they’ve announced dropping eight brands. That’s progress, but they didn’t need a pandemic to figure that out. Kohl’s has strong potential. I hope they realize it.

William Passodelis
Guest
11 days 10 hours ago

I agree with you Mr. Sward. The bad merchandising of their stores does not serve them at all. Merchandising and floor problems need to be addressed.

Rich Kizer
BrainTrust

I take my hat off to their entire management team as they guided their company through troubled waters. They made hard decisions; but that is what successful companies do. I don’t think we should ever forget about the incredible equity they have with their customers. This company knows its customers well, and will making the correct moves. As a tough, customer-centric competitor, they will soon pick up and start running hard again.

Brent Biddulph
BrainTrust

If the speculation is true that Amazon is looking at picking up JCP at a bargain price, looks like Kohl’s C-Level exit strategy hopes just got dashed.

Although, Amazon may forgo the JCP rescue in favor of waiting it out for Kohl’s to be in a similar situation. They kinda have a pick of the litter here with scooping up either of these undifferentiated department stores.

Craig Sundstrom
Guest
Giving out report cards seems rather pointless. This wasn’t — “isn’t”, actually, since it’s still ongoing — some pop quiz to be graded on, it was getting the final the first day of class…before you’ve even seen the material. Suffice it to say that (retail) businesses that weren’t essential, and didn’t have an online presence were shut down. Those that had that presence went with what they had. Do they wish they had a stronger one? Perhaps, but companies develop strategies for any number of reasons, and it’s useful to remember the overwhelming amount of retail sales are — or were, until March — still store-based. Moving forward, I think Kohl’s has one advantage: most of its stores are either standalone or in strip malls. This is going to be useful for curbside pickup which needs lots of space, and will also appeal to people who don’t feel comfortable in a crowded indoor (i.e. mall) environment. Other than that, no one really knows. Despite the efforts of many, for various reasons, to put a happy… Read more »
Shikha Jain
BrainTrust

I think Kohl’s was in a position where they had nothing to lose in pulling out all the stops to move inventory, and fortunately it paid off. I applaud their alacrity in putting a crisis response strategy into motion. Additionally, they’ve taken key learnings away about the importance of digital. No store at the scale of Kohl’s can survive without ongoing investment in ecommerce and omnichannel strategies in this day and age, especially after the catalyst of the pandemic.

Vis-à-vis competition, they have a lot to live up to in supermarket giants Target and Walmart. It’s hard to argue that anyone is in a better position than those, and Kohl’s has some catch-up to do, but the last quarter has made a good case for keeping them in the game.

wpDiscuz
Braintrust
"They have lost tremendous revenue, and building the company back up will take some time, but I believe they also learned a bit more about themselves and their customers. "
"Kohl’s will recover, but it won’t be easy: Apparel and soft home may feel especially discretionary in the face of job losses, food shortages and public health crisis."
"If the speculation is true that Amazon is looking at picking up JCP at a bargain price, looks like Kohl’s C-Level exit strategy hopes just got dashed."

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