Kohl’s Opens 46 Stores in One Day

Discussion
Oct 06, 2008

By Tom Ryan


Kohl’s Corp. opened 46 stores in one day last week as part of an aggressive effort to grab market share from competitors just as a likely brutal holiday season gets under way. CEO Kevin Mansell told The Wall Street Journal, “We’ve been in a period now for over a year where the customer is shopping less. You’d better start figuring out how you’re going to take more from the other guy.”

In total, the middle-market chain will open 75 stores this year to bring its count to 1,004, closing in on J.C. Penney’s 1,083.

“Our strong balance sheet and financial position continue to give us tremendous flexibility to make the right long-term decision and avoid being short-term focused,” said Mr. Mansell.

Particularly seen as vulnerable to Kohl’s expansion is California-based Mervyns, which is in bankruptcy proceedings, and northeast regionals, Boscov’s and Bon-Ton. More financially secure Macy’s and J.C. Penney are expected to feel less pressure.

California, where two stores opened last Wednesday, is seen as the biggest opportunity for Kohl’s.

“Where they’ve got stores in California, they’ve overlapped with Mervyns’ markets,” said Bill Dreher, an analyst with Deutsche Bank Securities. “Mervyns is likely to be a donor of market share to Kohl’s.”

The store opening bonanza is being combined with increased holiday-season marketing, especially online advertising. Deep discounts are also expected to arrive at the stores well before Black Friday.

“We’re very focused on making sure that we can show [customers] that their dollar is going further,” said Mr. Mansell. “This is going to be a good holiday season to be a consumer. There are going to be some incredible deals.”

Not everything is ultra-aggressive for Kohl’s. Only 50 stores are planned for 2009, and a former goal of reaching 1,400 stores by 2012 has been dropped. This holiday, plans call for lower inventories and comps sliding between two to four percent.

“For the foreseeable future, we see a tough economy, a tough environment,” said Mr. Mansell. “We have to be focused on outperforming the competition and gaining share at their expense.”

Discussion Questions: Is now the right time for Kohl’s to be so aggressive in going after market share? What’s the risk in such a strategy? What are the right conditions to go on the offensive rather than stay defensive during tough times?

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21 Comments on "Kohl’s Opens 46 Stores in One Day"


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James Tenser
Guest
13 years 7 months ago

Kohl’s does an outstanding job on wardrobe basics, which makes it not only a threat to the likes of Mervyns and Ross, but also a challenger to mid-market apparel retailers like JCPenney. It’s the specialty apparel chains that may be in for a rough time. In a soft economy, worried shoppers may cut back on luxury items, but still spend on value, and that’s squarely where Kohl’s is positioned.

The present down market is an opportunity for those with cash. Real estate is cheap, and leverage with suppliers is maximized. As well observed above, Kohl’s 46 openings were certainly in the pipeline for many months, so we should not consider this move a clever reaction to the economy. But the company didn’t back off in the face of bad news either.

Although the present times are not without risk, I’d say Kohl’s is nicely positioned to move ahead competitively.

Kevin Graff
Guest
13 years 7 months ago

History shows that it’s the bold that profit when everything around them appears to be in the dark. For every bad news story out there, a great opportunity is created. Kohl’s management is brave enough to grab hold, and hopefully has deep enough pockets to make everything work.

Most impressive is the feat of opening 46 stores in one day! We know retailers who ‘freak out’ when they have to open 4 in one year. Even if this doesn’t work out, you’ve got to admit that’s a win all to itself.

David Livingston
Guest
13 years 7 months ago

Kohl’s tends to open stores in the trendy and newer power strip centers. This is a big advantage over the overpriced traditional mall anchors. The mall is so 1970s. Kohl’s is basically the same kind of store but with lower prices.

Now is an excellent time to capitalize on the weakness of other retailers. Some of their competitors have been having a brand identity crisis with constant name changes. For all practical purposes now, the Sears stores are closed. About half the lights are on but nobody is inside. Who is next to knock off? Probably Mervyns, like the article says.

The risk is that the economy will turn into a depression. But the time is right when you see the competition unable to respond to your openings due to a lack of capital. Hopefully, Kohl’s has done their research and focused on opening stores near the higher volume and higher sales per square foot stores operated by their weakest competitors.

Ryan Mathews
Guest
13 years 7 months ago

There’s also a danger in being the first one to jump off the cliff. Does anyone think Kohl’s would have pursued this strategy if they knew the financial market was going to collapse?

Phil Rubin
Guest
Phil Rubin
13 years 7 months ago

As this was planned when things were much better economically, Kohl’s is making the right move. Those with strong balance sheets and capital reserves are smart to set the foundation for outperformance in a recovery and beyond. It is quite refreshing to see companies thinking longer-term and not acting like Chicken Little (even if the sky is lowering, if not actually falling!).

Cash is king, and so is focusing on the longer-term, now more than ever.

Gene Detroyer
Guest
13 years 7 months ago
Indeed! Opening 46 stores in one day is an exciting and brilliant strategy. From Kohl’s point of view, they are essentially designing a single store opening promotion while the competitors must act individually against each new store location. Kohl’s will be efficient, the competition will not. Certainly, the current economic crisis carries some questions and dark clouds for this Kohl’s endeavor. However, the decision to open these stores was made well before the economic gravity hit. The decision to open all of the stores together may even be due to the economic crisis as they looked for a way to spend promotional funds most efficiently. If we accept Mr. Mansell’s position that the balance sheet is strong, we can assume a consumer downturn will not be as threatening to Kohl’s as those other retailers that are already struggling. These are ideal conditions to go on the offensive. The competition is having difficulty to just hold their own, without the complication of a new Kohl’s down the highway. This reminds me of the famous case study… Read more »
Gene Hoffman
Guest
Gene Hoffman
13 years 7 months ago

Now that Kohl’s has taken 46 new organs to the marketplace party they had better hope that audience asks them to play.

Len Lewis
Guest
Len Lewis
13 years 7 months ago

Chances are these stores were in the pipeline for some time and stopping these openings on short notice is about as easy as turning a battleship.

However, when I read a story like this, I always wonder how many other stores have closed. Retail, as we all know, is a non-stop balancing act.

Brian Kelly
Guest
13 years 7 months ago

“In confusion there is profit.”
Tony Curtis in “Operation Petticoat”

Kohl’s westward expansion takes advantage of propitious regional conditions. New and alien markets do pose challenges for retailers. But with Mervyns’ customer loyalty now in play, the time is right to strike. During this period of uncertainty, investment must be thoughtful. Like most things Kohl’s does, this is a thoughtful move.

Remarkable that Kohl’s knocked off Mervyns’ innovative selling model and now is surpassing it’s “mentor.”

Just another reminder that…”Retail ain’t for sissies.”
IM Retail

Mark Burr
Guest
13 years 7 months ago

I have been through their stores. I have never purchased from them. My wife has, but I have not. It’s not a first choice. I can’t make out why it would be. There is nothing in their offering that would make sense for a special trip. Most of their stores are detached from malls in my area. Economy or not, I am surely missing something here because I just don’t see their offering equaling growth. These are of the most lackluster stores I have ever seen. I can’t see it.

Maybe I need to make another trip, but from my view, I can’t see a reason to cross their threshold.

Best of luck to them, but they could be looking at impending disaster.

Mel Kleiman
Guest
13 years 7 months ago

Kohl’s has always opened stores in large numbers at one time and as someone pointed out, it means just one big marketing campaign. Sure the stores were planned before the economic slow down and if they knew it was coming, the number may have been 25 or 30 new stores which still would have looked like a big number.

With Kohl’s position in the market as a provider of value and price, I think they are going to win with these new stores and with the ones they plan to open next year.

Michael Tesler
Guest
Michael Tesler
13 years 7 months ago

Kohl’s will benefit in the short run. Their new stores create a lot of attention and buzz and have huge first years and like Steve and Barry’s (now chapter 11) before them, they are probably getting over the top incentives to not try and back out of the deals they made in better times. Unlike other concepts though, Kohl’s stores quickly get stale and routine as they mature (they are a very predictable organization merchandise-wise).

This move is great for the Kohl’s higher ups and their 2008/2009 stock and stock options even in these current difficult economic conditions, but in ten years this likely will be looked back upon as the period that was “the beginning of the end” for them.

John Gaffney
Guest
John Gaffney
13 years 7 months ago

I love the boldness of this move. In the long run, it will serve Kohl’s well, and will accomplish the market share goal.

One major caution. Does this serve Kohl’s customers? Retailers can be a little less risky and a lot more efficient if they capture “share of customer” rather than “share of market.” Share of customer means they will travel out of their way to get to your store. They will give you information to foster a learning relationship. They will shop across channels. Opening more stores guarantees nothing if the customer isn’t the focus.

Matthew Spahn
Guest
Matthew Spahn
13 years 7 months ago

Just like many product brands, there is a period of time where retailers hit their stride and are trend right with consumers. Regardless of a difficult economy, whatever shopping is going out there, capturing market share is even more critical. Kohl’s needs to ride momentum when they can.

Like most other large and mature retailers, there will come a time of market saturation where the difficult challenge of comp store sales increases will be their mantra vs. new market growth.

Art Williams
Guest
Art Williams
13 years 7 months ago

They need to save some of that cash as it is going to be a long tough economy for quite a while. Consumer confidence is really low right now and probably headed lower. Discretionary spending is going to be very low with the stock market tanking, people losing jobs or afraid that they will soon and trying to cut back wherever they can. I agree that they most likely wouldn’t be so aggressive if their building decisions had not been made long before the economy had turned so bad.

Janet Dorenkott
Guest
Janet Dorenkott
13 years 7 months ago

Opening 46 stores in one day is bold even in good economic conditions. They were obviously planned before the most recent economic crisis. Now the trick is making it work. Fortunately, Kohl’s targets just the right market for the strategy to work. They have good products at low prices–exactly what this holiday’s shoppers will be looking for. They are in a good position for success.

Drew McElligott
Guest
Drew McElligott
13 years 7 months ago

If these 46 stores are in “path of growth” markets, tread carefully…that description for some of those markets (AZ!) is becoming a proven misnomer for the current year and years to come, and right now you’d have to question what new store costs were paid getting into those markets.

That said, I think Kohl’s is better positioned than most retailers even in the more saturated markets by differentiating themselves to the masses as affordable one-stop shopping for apparel (among other items). The more important question now is how about the next 46 in ’09? Where are those going to be opened, when, just how many, and at what cost? I’d like to see the methodology for making those decisions….

Don Delzell
Guest
Don Delzell
13 years 7 months ago
Kohl’s has always had more upside potential than some of its competition as a result of the previous decade of store expansion. Rather than putting up isolated stores here and there, Kohl’s has long conducted expansions in strength: a sufficient number of stores to reach critical logistical and marketing masses which resulted in operational efficiencies from the start. Examining the geographic distribution of existing stores prior to the recent slate of openings shows that many opportunities existed for expansion without significant cannibalization of existing store volume. That this is a market share ploy is obvious. That there is any criticism about a market share ploy in the current environment is puzzling. There are ONLY market share ploys to exploit in a down economy. Growth continues to be the critical driver for retail health, and entropy is a very real economic law. If you are not expanding, you are contracting. Particularly when comp stores are declining and unlikely to rebound soon. Capitalizing on a competitive advantage during a rough retail inning is absolute best practice. Growth… Read more »
Camille P. Schuster, Ph.D.
Guest
13 years 7 months ago

If owning real estate was in the long term plan for Kohl’s, purchasing the real estate at a low price is a good move. If they can manage merchandise to make a small profit now, it will be a great move in the long run. There are a lot if’s here. As the geographic territory changes, the mix of consumers and the consumer expectations change. Staying on top of the increasing demand for variety while managing to keep costs low will continue to be a challenge.

Lee Peterson
Guest
13 years 7 months ago

Kohl’s store opening strategy is to open as many stores as possible, all at once, twice a year. And, if you know anything about construction and real estate pipelines, merchandise assortments and buying plans, advertising, allocation planning and staffing, this is a very wise move…if you have the patience. It’s so much easier to do all at once than it is at 46 different times.

However, unfortunately for Kohl’s, it takes a while to get this big machine rolling and once it’s rolling, it’s not that easy to change. Impossible (or too costly) to change may be a more relevant term. So, the most current 46 “is what it is” (to borrow a Yogi-ism), they’re off the waterfall.

The real number to compare to will be the next “grand opening” of Kohl’s stores (about 6 months). Given the economic climate, I’d be very, very surprised if it’s larger than 46, or even 26 for that matter.

Ted Hurlbut
Guest
Ted Hurlbut
13 years 7 months ago

When the environment is tough, the strong double-down and set themselves up to be the big winners when things turn for the better. As has been stated above, these stores have probably been in the pipeline for awhile, but the retail climate has been tough for awhile as well. It’s almost always good business for retailers with strong finances to invest in their businesses when times are tough, whether it be new stores, remodels, IT infrastructure, etc.

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