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Will new store concepts work for Kohl's?

Written by Tom Ryan

As part of new initiatives under its Greatness Agenda strategy, Kohl's is pursuing three unique expansion opportunities: smaller stores, off-price stores and outlet stores featuring proprietary brands.

First, Kohl's has created a "smaller, more nimble" 35,000 square foot prototype. Kohl's average store size is 90,000 square feet.

Speaking last week at the WWD Apparel & Retail CEO Summit, Kevin Mansell, Kohl's chairman, CEO and president, said the smaller stores will allow the department store chain to reach underserved markets.

He said, "Sometimes they are small markets that we just can't economically figure out how to make a 90,000 square foot store work. I think also, in some cases, they are going to be very dense markets where we can drop a 35,000-square-foot store into it and reach a whole bunch of consumers in a trade area that otherwise, economically, we just couldn't make work."

Mr. Mansell admitted it's "going to be a challenge" to bring the Kohl's experience to a format half its typical size and said technology will play a role. Five to ten smaller stores will open in 2016.

Kevin Mansell, Kohl's
Kevin Mansell speaking at the WWD Apparel & Retail CEO Summit - Source: Kohl’s

While Target and Walmart have been getting attention for opening smaller stores, it hasn't been a major trend among department stores.

Second, Kohl's Off-Aisle concept, which was piloted in one location in New Jersey this year, will add two more locations in 2016. The 30,000-square-foot concept features returned merchandise at deep discounts.

Speaking on the retailer's third-quarter conference call, Mr. Mansell said Off Aisle was "originally conceived as a way for us to improve the valuation on our returns." Returns have increased as a percent of sales with many online sales being returned to the store.

"When we looked at that, the potential profit pool for managing what we get for those returns was pretty significant," said Mr. Mansell. Off-Aisle will also allow Kohl's "to learn more about the off price business in general."

Finally, Kohl's will be opening outlet stores under some of its proprietary brands. The first will be Fila, for which the chain holds exclusive rights for basic apparel. Ten to 15 Fila stores will open in spring 2015.

Mr. Mansell told Fortune that many of its private label or exclusive brands — also including Croft & Barrow, Apt. 9 and Sonoma — are prominent enough to stand on their own without being in a Kohl's store.

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