The department store sector was beleaguered in 2018,
but Kohl’s stood out.
During this time, Kohl’s (KSS) sales were growing, the stock price was soaring, and new CEO Michelle Gass was getting praise for her creative approach, whether it was partnering with Amazon (AMZN) to offer free Amazon (AMZN) returns at Kohl’s (KSS).
Kohl’s, Macy’s (M) and Nordstrom (JWN) were the three largest US department store chains.
Those days are over. The situation at Kohl’s is tumultuous right now.
Despite strong consumer spending and big gains at its competitors, the chain’s sales are down from before the pandemic. Changes in leadership are being demanded by
activist investors at Kohl’s. It is possible that the company will be sold.
According to Duskin, Macellum Advisors
views Kohl as a company that’s lost its way.
An activist investor group, including Macellum, bought Kohl’s last year. As a result of continued stock price weakness and market share losses, Macellum has revived its effort to overhaul Kohl’s.
In Duskin’s opinion, Kohl’s should do better than Macy’s rather than worse.
“We see many initiatives that sound good, but never produce results.”
Macellum, a Kohl’s spokesperson said, “is misinformed, shifting and hollow in its
narrative” and pushing for changes that would not improve Kohl’s and bring in “poorly qualified and inexperienced” directors.
The spokesperson said Kohl’s has “significantly transformed our business and positioning the Company for long-term success.”
A spokesperson for the company said, “We are already delivering results.”
In addition to the company’s record earnings in 2021, operating profit margins achieved two years ahead of schedule, and the company’s quarterly dividend increase, the spokesperson noted the company’s record dividend increase.
Despite Kohl’s attempts at turning things around, the company’s chances of success are slim.
Keeping up with the tide
Kohl’s is the largest department store chain in the United States with more than 1,100 stores and $19 billion in annual sales.
As a result of the competition from Amazon, growing big-box chains such as Walmart (WMT) and Target (TGT), and discount clothing stores such as TJMaxx, the department store industry has been in structural decline for years. There have been several companies that filed for bankruptcy in recent years, including Sears, JCPenney, Neiman Marcus, Barney’s, and others.
The discount players are undercutting department stores such as Kohl’s on price from the bottom, and the luxury stores are undercutting them on prestige, according to John Fisher, a lecturer at Boston College’s Carroll School of Management and former CEO of Saucony.
“It’s hard to be unique,” Fisher said. “I think Kohl’s is
caught right now by death in the middle.”
UBS reports that Kohl’s market share has been eroded since 2011 by several off-price retailers and Amazon.
According to UBS analyst Jay Sole, this erosion has been caused by factors like
consumers’ migration online and their preference for value. In the aftermath of the pandemic, this trend is likely to continue.”
The company has attempted a handful of approaches to draw customers and stave off competitors since Gass, who was previously Howard Schultz’s deputy at Starbucks (SBUX), took over as CEO in 2018.
Kohl’s introduced Nike (NKE) and Under Armour (UA) to its athleisure clothing line along with the Amazon returns partnership. Aside from shrinking some stores, Kohl’s has also leased out extra space to Aldi and Planet Fitness, opened Sephora stores inside Kohl’s to appeal to millennials, and made a stronger play for Millennials with new brands like PopSugar.
