Don't Tell Kohl's There's a Slowdown
Despite a cooling economy, the chain is expanding like crazy
Consumers may be retrenching, but Adrianne Erwin says the great deals and ease of shopping at the year-old Kohl's stores in Dallas keep her coming back. At Christmas, she dropped $500 there on clothing, shoes, and housewares. "Since I've found Kohl's, it's the only place I shop," says the 28-year-old quality assurance manager, who used to patronize J.C. Penney and Foley's. "I can't help it."
A growing legion of converts like Erwin helped Kohl's Corp., based in Menomonee Falls, Wis., to score nearly 15% annual growth in same-store sales during the holidays, when most retailers were grateful to stay even. By hawking department-store brands at discount prices, the $6 billion Kohl's has become one of retailing's few stars. "Quite simply, Kohl's executes better than anyone," says Steve Hayward, senior vice-president at Stein Roe Capital Opportunities Fund, which owns about 350,000 Kohl's shares.MOMENTUM. The question is, can the chain keep it up? The chilly retail climate is sure to test both Kohl's discipline and its ability to generate excitement in what many had written off as the played-out middle tier of retailing. Kohl's has carved out a lucrative niche between mall department stores, such
as Penney and Sears, and discounters like Wal-Mart and Target. Robertson Stephens Inc. analyst Bill A. Dreher estimates that Kohl's net income will rise 40%, to $362.3 million, for the 12 months ending Jan. 31, on 33% higher sales. Its stock has climbed 90% over the past year, to about 70. But now, in the face of a slowing economy, Kohl's is continuing with an aggressive expansion into such competitive markets as New York, Dallas, and Atlanta.
To make sure the momentum doesn't slow, Kohl's is revving up its marketing machine. Lighthearted ads that broke during the holiday season showed busy friends and families dodging visiting in-laws or wrapping gifts. The tag line, "That's more like it," attempted to make a virtue of what could have been a limitation: Kohl's may not carry as many items as mass-merchant rivals, but it has more of the national brands that customers want. The ads try to make the store's name stand for more than just a hot jeans label or popular athletic shoe. "The Kohl's brand is the one we want to develop," says Julie Gardner, senior vice-president for marketing.ATTRACTIVE MIX. It's a brand that was built on a simple premise: Offer easy-to-navigate stores in accessible locations to time-strapped middle-class families. Although it looks more like a discounter, Kohl's stocks department-store brands such as Nike, Adidas, and Healthtex at prices that are 10% to 15% below its competition. Equally important, analysts and investors say, Kohl's has shown a knack for consistently getting right its merchandise mix, which is heavily weighted toward apparel with enough of a fashion flair to appeal to suburban moms like Erwin. And the chain prides itself on having a narrow but deep assortment featuring a well-edited array of products in a variety of colors and sizes. The focus on crowd-pleasing items minimizes the need to vary the mix from region to region. The depth assures moms their trips to the store won't be wasted.
Getting that message across will be crucial as Kohl's expands its square footage by more than 20% annually over the next five years. Currently, the company operates 320 stores in 26 states, with about one-third of them in the Midwest. It plans to add 55 to 60 stores this year, including 15 in Atlanta in March, says Kohl's President Kevin Mansell. While it's a cold winter indeed for other retailers, Kohl's execs insist they can weather any storm. They say their midtier niche helps them attract consumers trading up from discounters during boom times and department store shoppers trading down during recessions. "In very tough times, Kohl's has thrived," Mansell says. That record may soon face its stiffest test yet.By Stephanie Anderson Forest in Dallas, with Gerry Khermouch in New YorkReturn to top