News Column

Kohl's Tweaks Dull Performance

August 16, 2013

Kohl's shoppers may soon see more emphasis on national brands and expanded cosmetics sections as the big retailer continues to tweak its merchandising approach and lift lackluster performance.

The Menomonee Falls-based chain of 1,155 department stores has made its mark with a three-part mix: inexpensive, private-label goods like Croft & Barrow; exclusive lines tied to fashion luminaries such as Vera Wang and celebrities such as Jennifer Lopez; and national brands -- Levi's, Lee, Carter's and the like.

But the firm's once-spectacular results have faded in recent years, prompting a shakeup in the merchandising team and other changes, including the recruitment a few months ago of former Starbucks executive Michelle Gass to fill a newly created, top-level post Kohl's has dubbed "chief customer officer."

Thursday, speaking with analysts after the company announced its second-quarter earnings, CEO Kevin Mansell indicated more changes are in store.

On tap: Raising the profile of the national brands, which made up about 44% of Kohl's sales in the last quarter.

"We do recognize that perhaps one of the things that we've done over the last couple years as we've developed new exclusive brands is put too much attention on them," Mansell said.

That was necessary, he said, as the retailer rolled out several exclusive lines -- merchandise tied to J-Lo, Marc Anthony, Daisy Fuentes and Tony Hawk, among others.

But it's time to rebalance the respective emphasis on the exclusive, private label and national brands, he said.

"We've recognized through both our own results, and through customer research, that the customer feels that we're not focused enough on all the great national brands we do carry," Mansell said.

He indicated the rebalancing could take various forms, including the inventory itself, how it's presented in the stores, and how it's marketed.

That should help drive more traffic into Kohl's stores, said Paul Swinand, who follows the company for Morningstar Inc. in Chicago.

"People don't come in for something that they've never heard of, or your private brand. That's kind of rare," he said.

Those lines may have higher profit margins, he said, but it's the brands that everyone knows that get shoppers in the door.

"People come in for a specific thing or a specific national brand and then they discover your private label," Swinand said.

Meanwhile, Kohl's is looking to expand its cosmetics offerings.

"We believe that we're underserving our customer in this multibillion-dollar market," Mansell told analysts.

Using 150 of its stores for testing, Kohl's has been experimenting with cosmetics departments of different sizes, placed in different locations.

"We expect to continue our tests and incorporate the changes in more stores in 2014 based on those results," Mansell said.

He discussed the new approaches after Kohl's announced that it earned $1.04 a share in the three months that ended Aug. 3 -- in line with analysts' expectations.

The company posted sales of $4.29 billion, up 2% from a year ago. Sales at stores open at least a year, a key performance measure in retailing, were up 0.9%.

The firm's net income fell, from $240 million in the second quarter of 2012 to $231 million in the quarter that just ended, as expenses increased. Earnings per share rose because Kohl's now has fewer shares outstanding.

Kohl's said it expects to earn 83 cents to 92 cents a share in the third quarter, with overall sales rising 1% to 3%.

The company tamped down its earnings guidance for the year, lowering it to $4.15 to $4.35 a share -- down from earlier estimates of $4.15 to $4.45.

That didn't hurt Kohl's on Wall Street Thursday. On a day when the Dow Jones average fell 225 points, and investors punished Wal-Mart Stores Inc. for a weak earnings report, Kohl's stock rose $2.67, or 5.3%, to $53.51.

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Source: Copyright Milwaukee Journal Sentinel (WI) 2013


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