Kohl’s Looks To A Future With Many Changes

Kohl’s management is gearing up for the holiday season after concluding a third quarter that was above expectations in both sales and earnings. Management indicated that back to school sales in August were weak and sales were disappointing.  However, sales rebounded in September and October and are continuing strong at the beginning of November. Nonetheless, the company is facing challenging times in the recurring pandemic environment.

In the near-term, the company will emphasize active casual wear, home, beauty and toys.  Already management has strengthened the buying team for apparel. The emphasis is active and casual wear.  Some brands, including Dana Buchman, Jennifer Lopez, Mudd, Candie’s, Juicy Couture, Rock & Republic, PopSugar and Elle have been eliminated to make room for activewear. Instead of these brands, the company has developed new brands such as Flex, which will be introduced in the Spring.  Flex has special action wear fabric. This year Land’s End was introduced in 150 stores and the brand will be expanded to another 150 stores next year.  Next year Kohl’s will bring Cole Hahn’s fashion to some stores. This has already been announced. Other brands are in the works and will follow. The customer wants more casual wear in the current environment.

Michelle Gass, CEO, indicated that the company reduced its inventory by 26% and will remain in tight control of inventory and all other expenses. Kohl’s is prepared with more omnichannel conveniences to offer the customer a great experience. She indicated that one third of all omnichannel purchases are now curb-side pickup. In order to prepare for Christmas rush, she indicated that certain items were heavily stocked in stores to insure quick customer service.

Ms. Gass expanded on the potential of beauty (which is a strong draw in some competitive stores). She reported that the beauty shops, currently in 62 stores, will be expanded to more stores in the coming year as well as having a greater assortment of items.  In addition, she stressed the seasonal demand for toys and Kohl’s expanded toy departments that feature the toys in greatest demand.  The toy department also underscored the value message Kohl’s tries to stress to their customers by aggressively pricing this classification.

Kohl’s is closed on Thanksgiving, as are most other stores. It will open early on Friday morning. I suspect at 5 am. I also believe that there will be less of a rush to the stores as many people are afraid of the coronavirus COVID-19 threat. While the company as done everything possible to prevent infections by having social distancing, one-way passages, mandatory masks and cleaning crews for everything including the restrooms, I believe there will be a major switch to e-commerce. A new survey by Avionos, a digital commerce and marketing company had the following results:

1.   Shopping on Black Friday

·      I will do more of my Black Friday shopping on-line 54%

·      I will do more of my Black Friday shopping in-store or in person 18%

·      I do not expect my Black Friday shopping habits to change 12%

·      I am not planning to shop on Black Friday this year 16%

2.   Shopping in large or small stores

·      I will do significantly more of my holiday shopping in small local businesses 28%

·      I will do somewhat more of my holiday shopping at small local businesses 27%

·      I will do the same amount of on Black my holiday shopping at local, small businesses 33%

·      I will do somewhat less of my holiday shopping at small, local businesses than last year 7%

·      I will do significantly less of my holiday shopping at small, local businesses than last year 4%

The whole survey by this company points to less shopping in the big stores and a fear of catching the virus. We are currently seeing a resurgence of the pandemic throughout the United States and it is likely that some of the 1100 Kohl stores will not be able to open on Black Friday. I think the current effort by the company to have people shop now is well advised and will help achieve a better sales goal.

Retailers look to clear their shelves before Christmas of their seasonal merchandise. I am sure that Kohl’s will clear holiday merchandise by December 17, when traffic could pick up for last minute shopping.

For the record: Third quarter sales decreased by 13.3% to $3,979 Million from $4,625 Million.  Adjusted diluted earnings per share were $0.01 vs $0.74 in the previous year’s third quarter.  The street had expected a loss of $(0.45). The company had great cash flow, so that it was able to retire the revolver and it now has $1.9 Billion cash. That is an enviable position to be in on the eve of Thanksgiving.