A winning quarter does not necessarily qualify as a turnaround. But, the initiatives and strategies CEO Kevin Mansell and his team planted during what I questioned might have been a flatlining period (Is Kohl’s Flatlining?) (roughly between 2012 and 2016) reflect that they knew what was needed to transform their old-world model into a winning new-world model.
And Kohl’s stellar holiday season could very well be an indication that their “Greatness Agenda” is beginning to kick in. With sales rising 6.9 percent, (a 30 percent online increase), compared to its competitors: Macy’s up 1.1 percent; J.C. Penney up 3.4 percent; and Target up 3.4 percent, this could be the spark that fires a sustainable upward trajectory.
The Two-Point Preemptive Distribution Strategy That Set the Stage
First, I need to point out that Kohl’s brilliant distribution strategy, which began in the early 90s (which Mr. Mansell described to me as “just common sense”), provides the perfect platform for a competitive advantage today, and on which all of their other “greatness” strategies can easily be integrated.
Kohl’s distribution strategy and entire value proposition was focused on, and organized around one consumer target: the 35- to 55-year-old working mom. She had kids, lived in the suburbs and did not have the time to travel to, and shop through, the malls. Think about the target consumer as point #1. Kohl’s roughly 1160 stores are not (ironically) anchored to the traffic killing and largely dying malls. So, what did the Kohl’s “just common sense” brilliant strategists do? They brought Kohl’s to their customers by identifying the neighborhoods where these moms resided and placing freestanding stores almost literally across the street from where they lived.
Point #2: Kohl’s did not stop with convenient store locations. They holistically engineered the entire shopping experience around saving time for the time-starved working mom. The footprint averaged about 86,000 square feet typically on one floor, with wide aisles, central check-out, shopping carts for ease of traversing the store and huge parking lots for quick in and quick out.
Call it common sense or brilliant strategy — who cares? During those meteoric growth years, they were hijacking sales from every nearby mall. At one point, Kevin Mansell said, “Kohl’s intercepts that working mom on her way to the mall,” thus physically stealing a potential customer from every store in each mall. And of course, one of those stores would be JC Penney, who one analyst said lost around $10 billion to Kohl’s during its blistering growth period.
Kohl’s was the poster child for what I coined “preemptive distribution” in my co-authored book, The New Rules of Retail. And this common-sense strategy for Kohl’s was so brilliant that they experienced two decades of explosive growth from a little over $1 billion in sales in 1992 with 79 stores, continuing with hardly a hiccup through the recession of the late 90s, and then rolling over a speed bump in 2004, and on into 2012 racking up sales of $18.8 billion across 1150 stores.
The New World “Greatness” Strategies for Winning
Based on recent comments reported from the ICR conference in Florida and CNBC news coverage, it seems apparent that Mr. Mansell and likely successor, Michelle Gass, have decided to redefine their 1160 physical buildings and online site as platforms and not retail stores. This is a major step to transforming the old retail model. A platform (with Amazon as the poster child) is a place (digital or physical) upon which anything and everything, including competitive brands and/or other retailers, and/or services, can operate independently on, or with, the host platform (Kohl’s) – as long as they are synergistic or compatible with its portfolio of products and services, even if they are competitive.
Mansell told CNBC that about 300 of their 1160 locations will operate with less space; Kohl’s will lease that now not needed space to other retailers. They are focusing on targeting high-traffic retailers, like grocery and convenience stores. I’m sure their test with Amazon shops is already bringing more young traffic into their stores. Amazon at Kohl’s is selling some devices and also taking appointments to go to consumers’ homes to help setting up smart homes. Amazon’s “get” is that the eventual 1160 Kohl’s locations (my opinion) will become distribution and delivery platforms for pick-ups and returns, shrinking the “last mile.” I also opined that Amazon may ultimately acquire Kohl’s for all the obvious reasons. (Kohl’s/Amazon – Win Win?)
Kohl’s is also pursuing, but not nearly as fast as I would advise, the opening of seven new, smaller store formats as a test. Come on guys! This was your brilliance 25 years ago when you began the “in your neighborhood” winning strategy. This strategy makes it even more convenient for online shoppers to pick up in stores and also plays into how millennials like to shop today — with more intimacy and better service, hunting through smaller boutiques for special, exclusive stuff. Accelerate this initiative Ms. Gass!
I don’t think Mansell or Gass will limit their vision of how vast their platforms can be. We already have seen the limitless-ness of Amazon’s global platforms. Hey, if I were Children’s Place and Kohl’s, I would be talking to each other. Think of the new millennial mom traffic Kohl’s would get. And think about Children’s Place being on 1160 Kohl’s platforms almost overnight, with low-to-no capital investment.
Along with right-sizing, the smaller neighborhood store initiative, and ramping up its omnichannel strategy, Kohl’s has some other initiatives on its greatness agenda. One is rolling out new beauty shops within the stores. Penney’s experience with Sephora has yielded $600 per square foot a year, compared to Kohl’s miserable productivity in the beauty space over the past many years. Beauty is a go-to physical destination for women who cannot sample or apply beauty online.
Other strategies in the works include a continuing focus on perfecting the seamless integration of their digital and physical platforms (admittedly, they were a little slow out of that starting gate). They reorganized their merchandising operations and are improving and adding to their private brand line-up. They are also bringing in new and younger brands like Under Armour, Nike, Puma, Izod, Apple and Fitbit. Activewear in general has bumped sales up in the category by 30 percent.
Kohl’s continues to improve their data analytics to drill down to personalizing each consumer’s shopping journey, as well as to better assort merchandise according to different consumer preferences in different regions and/or markets. Kohl’s is also launching a new loyalty program to personalize offers for all of its customers, not just Kohl’s cardholders. These personalization efforts could lead to more decentralized, localized decision making.
The Kohl’s Advantage in the New World
On a macro strategic level, Kohl’s can leapfrog from the base they first established in the 90s with their 1160 platforms that have “endless aisles,” both physically and digitally. And I believe that Kohl’s understands this amazing opportunity and knows how to implement it. I predict Kohl’s will be a powerful new-world contender … soon.