Not anymore. Kohl’s is in turmoil today.
The chain’s sales are lower than before the pandemic, despite strong consumer spending and as its rivals enjoy big gains. Activist investors are circling Kohl’s and demanding leadership changes. A sale of the company could be on the horizon.
“We see a company that’s lost its way,” said Jonathan Duskin, managing partner at Macellum Advisors, an activist investment firm that has become Kohl’s third largest shareholder.
Kohl’s “should be doing better than Macy’s, not worse,” Duskin said. “We see a lot of initiatives that sound okay, but never really result in growth.”
In a statement, a Kohl’s spokesperson blasted Macellum, saying the firm was “using a misinformed, shifting and hollow narrative” to push for changes that would not improve Kohl’s and result in “poorly qualified and inexperienced” board directors.
The spokesperson said Kohl’s has made “substantial progress in transforming our business and positioning the Company for long-term success.”
“We are already delivering results,” the spokesperson added, pointing to the company’s record earnings in 2021, operating profit margins reached two years ahead of schedule and an increase in the company’s quarterly dividend.
Kohl’s is attempting yet another makeover to turn things around, but its
Fighting the tide
With more than 1,100 US stores and around $19 billion in annual sales, Kohl’s is the largest department store chain in the United States.
Department stores including Kohl’s have been undercut on prices by discount players from the bottom, and prestige by luxury stores at the top, said John Fisher, a senior lecturer at Boston College’s Carroll School of Management and former CEO of Saucony running shoes.
“It’s hard to be unique,” Fisher said. “I think Kohl’s is caught right now by death in the middle.”
“[F]orces like consumers’ migration to online and preference for value have contributed to this erosion,” UBS analyst Jay Sole said in a recent report. “This will likely continue after the pandemic.”
These strategies have not led to major improvements. Kohl’s has improved its athleisure business and other areas, but its women’s clothing business has slumped.
In 2018, sales inched up 0.7% from the prior year. In 2019, they dropped 1.2% before plunging 20% in 2020 due to store closures and Covid-19 restrictions.
Last year, after stores reopened and shoppers refreshed their wardrobes, sales bounced back 23% — but that was still below pre-pandemic levels.
Competition has become more cutthroat in the four years since Gass took over, and “a lot of Kohl’s stores feel tired,” said Neil Saunders, managing director of retail at GlobalData. “It has been very easy for customers to switch away from Kohl’s to others offering something better.”
And brand partnerships with Amazon and Sephora do not address core issues, he added. “Kohl’s needs to look to improving its own brand rather than relying on others to lift it.”
A sale looming?
Over the last few months, activist investors have been pressing for changes at Kohl’s.
To fight off pressure, Kohl’s last week laid out plans for a “complete reinvention of our business model and our brand” at an investor day.
Kohl’s said it would add Sephora mini-shops to roughly 75% of its 1,100 US stores, open 100 new locations at half the size of its traditional outlets in the next four years and increase its popular Kohl’s Cash rewards program to 7.5% on purchases, up from 5%. Kohl’s also unveiled new strategies to grow online, including self-service for pickup orders and returns.
“We’re evolving our position from a department store to a more focused lifestyle concept centered around the active and casual lifestyle,” Gass said in a presentation.
But to Duskin at Macellum Advisors, the plan was “disappointing.”
He believes the strategy won’t meaningfully change how consumers see Kohl’s — and he says it’s time for a new board and, possibly, a new CEO. Kohl’s has not fully taken advantage of its stores being located away from traditional malls, which are losing foot traffic, he said, and he questions whether the investment in Sephora is worth the cost.
Kohl’s board has an “ongoing dialogue with potential bidders” and will measure any offers against its own “compelling standalone plan,” a spokesperson said.
Duskin expects Kohl’s to accept a buyout offer, he said. “This company can easily be turned around.”