There are a few puzzles in our world that both common man and qualified experts have attempted to solve but cannot yet seemingly produce a satisfying answer.
For instance, are we alone in this universe? What is our purpose? How many great civilizations have come and gone, undetected and still buried at the bottom of the sea or in vast, vegetated rainforests? Do we really have free will? Is simulation theory something that just might be possible?
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And, of course, why do some retailers thrive, while others are cast recklessly to the side due to fickle and ever-changing consumer taste?
The latter question is certainly one Kohl's (KSS) has been asking itself for the past several quarters.
Back in the early- and mid-2000s, Kohl's was popular for its convenience and selection. Typically located away not in malls but rather in bustling suburban shopping plazas, Kohl's was a destination for busy families who didn't want or need to make the full-fledged journey to the mall. Kohl's offered plenty of things families needed: adult's and children's apparel, sportswear, outdoor equipment, kitchen and cooking accessories – including some appliances – cosmetics, decor, and sporting goods.
This, in theory, should still be a winning model. Given the recent downward trends in mall foot traffic, as well as the 21st century consumer's propensity toward budget-friendly stores, Kohl's accessibility and affordability should keep it walking the tight rope of retail success. But it hasn't. As other brick and mortar stores like TJ Maxx and Marshalls (TJX) thrive, Kohl's loses ground.
Kohl's struggles with sales
The most recent quarter, which included what's typically a busy holiday shopping season, didn't offer much salvation.
"But first, let me touch on our fourth quarter results. Net sales decreased 1.1% in Q4, and comparable sales, which excludes sales from the 53rd week, decreased 4.3%. The holiday period started off mixed, with November being the weakest month in the quarter, due, in part, to warmer weather. December comparable sales were flat to last year, and January sales were down as we lapped elevated clearance activity from the prior year," CEO Tom Kingsbury said in a Wednesday earnings call.
It's never a good sign when management is blaming good weather for poor sales. But Kohl's has been taking a new direction in an effort to drive sales and reinvigorate consumer excitement for the brand.
New format might attract new shoppers
And that plan, oddly enough, involves bringing in other brands that Kohl's hopes will attract more shoppers by something like osmosis.
The multiyear plan has involved some of the top brands in the United States. In 2019, Kohl's piloted a nationwide program with Amazon, where participating locations would process Amazon (AMZN) returns in the hopes that customers would stay to peruse the aisles while they were at it.
Two years later it partnered with LVMH-owned (LVMHF) cosmetics store Sephora, bringing pared-down versions of the cosmetic shop inside Kohl's, in similar hopes that beauty enthusiasts would linger and bring spillover sales. Kingsbury said its partnership with Sephora drove "meaningful beauty sales growth," at the store. Kohl's said Sephora made up for 10% of its net sales overall in 2023.
Kohl's clearly sees the addition of high-powered brands in its stores as a winning strategy, similar to how Target (TGT) operates. The giant retailer routinely partners with other recognizable brands, like Starbucks (SBUX) and Ulta (ULTA) , folding in mini shoppable experiences into its own brick and mortar operations, and it has proven a winning strategy.
And Kohl's newest partnership with Babies R Us, announced on Wednesday, may propel it to greater profitability as it looks to scale up the "home, gifting, and impulse initiatives," as it calls it.
"And this year, we are partnering with Babies 'R' Us to meaningfully expand our presence in the baby category, which is a compelling whitespace opportunity for Kohl's. Collectively, we see these underpenetrated categories as more than $2 billion sales opportunity over the next several years," Kingsbury explained.
The exclusive licensing opportunity will allow Kohl's to open 200 Babies R Us shops in fall 2024. Like most of its Sephoras, the shops will be condensed versions, at an average of 1,500 square feet per location. It will also offer a baby registry arm.
Kohl's added it expects its home decor sales to increase in the coming year, further emphasizing the importance of its feel-good and giftable sales initiative.
