Will Private Label Lead a Kohl’s Turnaround?

Kohl’s Inc. said strength across its private labels helped drive better-than-expected second-quarter results and remains key to its recovery efforts as it prioritizes showing value to consumers.

“We know that we have a powerful set of proprietary brands that build customer trust and loyalty,” said Michael Bender, Kohl’s interim CEO, on an analyst call. “In addition, customers who buy our proprietary brands spend more of their wallet with Kohl's. These proprietary brands play an instrumental role in our value proposition. They allow us to offer quality products at a lower opening price point, which highly resonates with our core loyal customers."

Kohl's Private Label Shows Relative Strength

Helped by internal efforts to elevated proprietary brands, Kohl’s private label comps were down 3% in the second quarter, but improved 500 basis points sequentially and outperformed the overall 4.2% decline. Net sales topped expectations due to improved online and proprietary brand sales, both of which performed positively in July.

This private label outperformance was driven by strength by Tech Gear, Simply Vera Vera Wang, Lauren Conrad, and Flex. Three recently-launched home brands -- Mariana, Hotelier and Mingle and Co. -- saw a “strong initial response” and contributed to improved performance in bedding, bath and tabletop categories. This fall, the Flex brand will be expanded to kids.

Bender said, “We believe there is a substantial opportunity for us to lean into our value oriented proprietary brands to offer more relevance and quality at an affordable price point to our customers.”

Value Proposition Still on Consumers' Minds

Another move being made to emphasize value is making a larger range of national brands eligible for coupons as excluding certain brands “created friction with our customer base as we were not providing the value they were looking for, especially with our loyal customer,” said Bender.

Bender noted that the push to emphasize value comes as Kohl’s lower- to middle-income customers are trading down to lower opening price point products.

Other steps to revive sales, which have declined three years in a row, include reinvesting in women, petites, and jewelry as past efforts to reach new consumers “led to unintentional displacement of products and categories that were important to our most loyal customers,” said Bender. Kohl’s is continuing to invest in Sephora, which is bringing in younger consumers, and impulse departments near cash registers.

To improve the in-store shopping experience,  Kohl’s is also reestablishing a dedicated accessories pad, relocating juniors across from Sephora, moving active back to the men's and women's departments, and buying narrower and deeper in basics to reduce out-of-stocks. Bender said, “We know we currently have an inconsistent in store experience without a unifying point of view of what we want the customer to feel when they walk in the store.”

Shares of Kohl’s rose 24% to $16.17 on the day second-quarter results were reported due to the quarter’s beat and raised outlook, but shares had been as high as $64.40 in 2021. Bender cautioned to analysts, “While it's clear that these efforts are beginning to resonate with our customers, we also recognize that this performance is not yet where we aim to be.”