KOHL'S DEPARTMENT STORES, INC.

Kohl's wants to be easy on shoppers and tough on competition. It operates about 1,150 discount department stores in 49 states. Nearly half of its stores are in the Midwest and West, where Kohl's continues to grow while rapidly expanding into other markets. Moderately priced name-brand and private-label apparel, shoes, accessories, and housewares are sold through centrally located cash registers, designed to speed checkout and keep staff costs down. Kohl's competes with discount and mid-level department stores. Merchandising relationships allow Kohl's to carry top brands (NIKE, Levi's, OshKosh B'Gosh) not typically available to discounters; it sells them cheaper than department stores by controlling costs.

Operations

To support its brick-and-mortar and online businesses, Wisconsin-based Kohl's maintains a network of more than a dozen distribution centers nationwide. Dedicated to its physical stores, the company operates distribution facilities in Findlay, Ohio; Winchester, Virginia; Blue Springs, Missouri; Corsicana, Texas; Mamakating, New York; San Bernardino, California; Macon, Georgia; Patterson, California; and Ottawa, Illinois. Facilities that cater to the Kohl's e-commerce business are located in Monroe, Ohio; San Bernardino, California; Edgewood, Maryland; and DeSoto, Texas. During the important holiday selling season, the apparel chain ships selected online orders from its store distribution centers rather than its e-commerce fulfillment centers. The company is also building the infrastructure that will allow stores to fulfill online order shipments.

The company also operates design studios in New York City and in Santa Monica, California.

Kohl's purchases its merchandise from both domestic and foreign suppliers. A third-party purchasing agent supplies about 30% of the company's merchandise.

Sales and Marketing

Kohl's ad spending increased as a percentage of net sales in fiscal 2013 (ends January) to $993 million, up from $962 million in 2012 and $869 million in 2011. This represents 5.2% of sales, 5.1%, and 4.7%, respectively. Increased promotional activities and typical costs related to television and radio broadcasts, direct mail, and newspaper circulars contributed toward the higher ad spend.

The company sells its products through its 1,150 stores, online, and through in-store kiosks that offer customers free shipping to their homes.

Financial Analysis

In fiscal 2013 (ends January) the apparel chain logged 3% increases in total net sales due to a boost in same-store sales and a 40% rise in e-commerce revenues. These modest same-store sales increases were driven by higher average unit prices offset by fewer transactions. Customers are making fewer trips to Kohl's and spending less per visit. A noteworthy bright spot in recent years has been the retailer's e-commerce business, which first hit $1 billion in sales in 2012 (up about 27% vs. the prior year). In fiscal 2013 online sales exceeded $1.4 billion, thanks to increased transaction volumes. Net income declined 16% during the same reporting period due to dwindling gross margins as the result of its aggressive discounting activity during the year and particularly during the important holiday season.

The company's results were helped by sales growth in men's casual sportswear, pants, and activewear; children's toys; athletic shoes and women's footwear; sterling silver jewelry; women's updated/contemporary sportswear and activewear; and bedding.

Strategy

Chastened by the sales dropoff, Kohl's has become less aggressive about passing on its higher costs to customers going forward. Following a busy year of 50 store-remodeling projects, the chain plans to remodel another 30 stores in fiscal 2014. Additionally, Kohl's is opening a dozen new stores, 11 of which will be "small" stores (with less than 64,000 sq. ft. of selling space). By comparison, a typical Kohl's store has about 88,000 sq. ft. of retail space. Kohl's has been increasing the number of small and urban stores in its portfolio to tailor its size to new markets. The company currently operates about five urban stores in the New York and Chicago markets that boast, on average, about 125,000 sq. ft. of retail space.

Brands -- both Kohl's own and popular national brands -- are key to Kohl's merchandising strategy. In a bid to emulate its "cheap chic" rival Target and also longtime competitor J. C. Penney, Kohl's has been enlisting big-name designers to produce merchandise exclusively for its stores. Indeed, private-label and exclusive brands accounted for 52% of 2013 sales, up significantly from 44% in 2009. Kohl's carries Jennifer Lopez and Marc Anthony brands. The launch of these brands was Kohl's largest in company history. The Jennifer Lopez collection comprises sportswear, dresses, handbags, shoes, and more. Sportswear, dress shirts, neckwear, suit separates, shoes, and accessories are part of the Marc Anthony line. To build its "Available Only at Kohl's" business, the discounter in 2012 began to offer a low-cost collection named Simply Vera in stores and online as the result of the deal with designer Vera Wang. It inked a similar alliance with upscale jeans maker Rock & Republic, Food Network, LC Lauren Conrad, and FILA Sport, as well as "DesigNation" limited-edition collections from designers Narcisco Rodriguez in 2012, Derek Lam in spring 2013, and Catherine Malandrino in fall 2013.

As Kohl's continues to grow, the retailer's headquarters in Menomonee Falls, Wisconsin, has expanded to house nearly 3,000 corporate employees. To meet future capacity needs, the company in 2012 assumed ownership of some 100 acres of land in the city's Woodland Prime office park and acquired a small office building adjacent to the property. The land and office now serves as a second corporate campus for Kohl's.

Ownership

The investment firm T. Rowe Price is the company's largest shareholder with 12% of its shares.

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KOHL'S DEPARTMENT STORES, INC.


N56w17000 Ridgewood Dr
Menomonee Falls, WI 53051-7096
Phone: 1 (262) 703-7000
www.kohls.com

STATS


  • Employer Type: Unknown
  • Exec Vp-cio: John Lesko
  • Chb: Larry Montgomery
  • Senior Marketing Executive: Michelle Shanley

Major Office Locations

  • Menomonee Falls, WI