It is “no secret” that Kohl’s likes to open stores near Target, the company said in a recent conference call.
Credit Suisse’s Michael Exstein looked into this relationship and found surprisingly that same store sales at Kohl’s were a leading indicator for sales at the larger store:
[w]hen looking at the past six years of same store sales trends, the correlation between the two companies is a surprisingly high 76% (same store sales on a rolling 12 month basis), which shows that the two retailers seem to feed off of each other more than we previously realised. The real surprise though is that it seems Kohl’s sales trends lead Target’s. We were always of the belief that Target drove traffic to Kohl’s, and in turn, Kohl’s SSS were somewhat dependent on the health of larger retailers such as Target. Instead, in the ’07 downturn, the inflection point in Kohl’s SSS occurred before Target’s, and the same was witnessed in the recovery. Recently, Kohl’s SSS growth started to decelerate, and TGT’s seems to be flattening. With that in mind, the natural question is where do we go from here?
With positive domestic economic data continuing to pour in (unemployment now 8.3%, ISM Non-Mfg at an 11 month high, impressive real income growth, etc), we are very hesitant to say that we expect TGT’s SSS to roll over anytime soon. We do think that the relationship between these two will be very interesting to track however, and if Kohl’s SSS trend starts to bottom, could that signal a potential lift off in sales for both companies?