Kohl's wants to be easy on shoppers and tough on competition. It operates about 1,160 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.
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.
The company also operates design studios in New York City and in Santa Monica, California.
Sales and Marketing
Kohl's ad spending increased as a percentage of net sales in fiscal 2014 (ends January) to $1,013 million, up from $993 million in 2013 and $962 million in 2012. This represents 5.3% of sales, 5.2%, and 5.1%, 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 stores (91% of sales), online (9%), and through in-store kiosks that offer customers free shipping to their homes.
Kohl's purchases its merchandise from both domestic and foreign suppliers. A third-party purchasing agent supplies about 30% of the company's merchandise.
In fiscal 2014 (ends January) the apparel chain logged a 1% decrease in revenue as the company cut prices and discounted merchandise outsold full-price items. Bad weather kept shoppers away during the winter and spring, causing increases in online shopping. But the e-commerce uptick wasn't enough to offset the drop in store totals. The sluggish sales were part of a multi-year trend of tepid results.
Net income had continued to slide, dropping 10% to $889 million due to the revenue fall. Cash from operations, which has fluctuated in recent years, grew $619 million to $1,884 million due to reduced inventory and lower bonuses and other payroll-related costs. Kohl's also paid more for inventory as it focused on national brands.
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 2015. 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. 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.