Photo: Getty Images/Jason Merritt
With the recent (and seemingly unstoppable) decline of JC Penney and Sears, much internet ink has been spilled lamenting the decline of these companies, while little analysis has been done exploring which retailers, brands, and stores can best profit from this massive outflow of JCP’s and Sears’ traditionally-loyal customers. The most obvious contender in this marketshare version of jump-ball?
After all, Kohl’s, the 4th largest department store in the country, is where we, the consumer, are to “expect great things.” And, as a company operating “1,146 stores in 49 states” with a stated “focus on providing excellent value to customers through offering moderately priced, exclusive and national brand apparel” (while boasting operating margins in excess of 11%), Kohl’s operates as the natural fit for those lost in JCP’s and Sears’ wave of ineptitude.
Furthermore, as a retailer with famously low cost operations, Kohl’s should be looking ahead to a positive 2013.
If recent news is any indication, however, the retailer is in (if not as much trouble as its natural retail adversaries) an unenviable position within the market. With Y-o-Y November sales down nearly 5% (with Y-o-Y down nearly .4%), and Black Friday sales at stores open at least a year dropping 5.6 per cent (recording negative sales in all regions), Kohl’s appears to be simply surviving, instead of thriving, within a retail market that should be rewarding the retailer.
Here, then, are 3 key mistakes Kohl’s must fix to seize upon the void JCP and Sears have left in the marketplace:
1) Shopping isn’t showrooming: Here, Kohl’s is falling victim to the same profit-sucking phenomena destroying electronic-giant-turned-disaster Best Buy. Going into the holiday shopping season, it’s become obvious that Kohl’s “seemed to be the victim of its own “showrooming,” when consumers visit stores to see the merchandise but end up buying online,” frequently through internet behemoth Amazon or similar value site. In short, costumers walk in, fondle the goods, and promptly turn around to plunk their dollars down virtually somewhere else.
There are 2 key moves necessary to rectify this issue: First, Kohl’s must jack up cap ex to compete. The Kohl’s in-store shopping experience has, for decades, remained essentially the same: dismal lighting, poor floor outlays, and a shoddy physical layout that, in the modern day, drives consumers in for a quick visit before fleeing to purchase elsewhere.
In short, the Kohl’s shopping experience of my childhood has remained a relatively unpleasant one (a claim confirmed independently by shoppers across the country), the kiss of retail death in this market of sleek interiors, storied exteriors, and immediate online competition. In order to continue cultivating its customer base, Kohl’s must clean up its interior act.
Second, Kohl’s possesses a notoriously ugly reputation for bad website service and worse online delivery processes. With the reputation of an online experience that includes an “erratic nature of delivery time makes us nervous when buying with a hard deadline,” Kohl’s nearly begs customers to come in and try the merchandise, then buy somewhere else.
Obviously, as is the case with JCP and Sears, Kohl’s must follow Target’s lead and immediately overhaul its online shopping experience to lock consumers into both the in-store and online loop of consumption and purchase. While revamping an online platform sounds easy, it is, obviously, a difficult task. But one that MUST happen if Kohl’s is to usurp the JCP and Sears customer (while also competing with Target).
2) Old name, new brand: This leads to the second central issue facing the 50-year old retailer – a distinguished, yet arguably-ready-for-a-shakeup brand and message. This, of course, links with the above-outline need for an (intelligently allocated) increase in cap ex, but extends more broadly to the (arguably specific, yet-difficult-to-explain) Kohl’s “brand.” After all, what IS the Kohl’s brand?
Ask 100 different consumers this question, and you’ll get 100 different answers. Given this reality, it’s necessary Kohl’s undergo not only a physical makeover, but successful branding one – new logo, new image, new experience. In short, become a New Kohl’s.
Now, finance people loathe these soft phrases with little immediate actionable impact, but Kohl’s currently has issues with its balance sheet that plays into this modern rebranding strategy. In particular, a recent Y-o-Y increase in inventory belies a misread of increased demand, which means shorter turn times and (relatively trendy) inventory that grows stale on store shelves. This, in turn, means customers are less incented to return to the retailer to check out “what’s new” and “what’s hip.” This decrease in repeat visits in turn leads to longer inventory turn times, which in turn leads to…well, you get it.
In short, a revamped Kohl’s (brand-wise) that moves inventory more quickly immediately becomes more attractive to the consumer.
3) Product, product, product: Finally, several consumers have kindly written me, asking this question in a myriad of ways: “What the hell is up with Kohl’s?” Indeed, one single father wrote: “I hate that when I go into Kohl’s, my daughter and I either end up with $5 or $100 pairs of jeans. Whatever happened to middle of the road clothes?” Dated analogy aside, the man has a point.
In recent quarters, Kohl’s has jumped on the celebrity-clothing/product bandwagon, offering “$99.99 platform wedge boots and $60 animal print faux-wrap dresses” in stores which have traditionally and historically offered reasonably-priced, moderately-durable wares (not only apparel, but in other departments as well).
Now, a division has emerged between the cheap-and-disposable goods (equivalents of which are often found at Wal-Mart) and overly-priced, second-tier celebrity lines (including Vera Wang, Jennifer Lopez, and Lauren Conrad), most featuring pieces likely to make any traditional, Midwestern parent nervous. Kohl’s, then, appears to be suffering an identity crisis between what it thinks its competition has become, what it thinks its customer wants, and what it should, in turn, offer (in terms for both product and service).
An immediately-streamlined, highly-analytic buying process (focusing more on quality-v-quantity analysis than headline celebrity offerings) could soon make Kohl’s a must-shop experience for traditional JCP and Sears customers.
Kohl’s currently sits on the precipice of an extremely profitable opportunity to steal customers and marketshare from its slowly-dying competition.
Looks the way things are going, however, Target will soon be writing the retailer a “Happy Holidays, Thanks for the Customers” card.
Margaret Bogenrief is a partner with ACM Partners, a boutique crisis management and distressed investing firm serving companies and municipalities in financial distress. She can be reached at [email protected]
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