Not anymore. Kolya is confused today.
The chain’s sales are lower than before the pandemic, despite high consumer spending, and its competitors are making big profits. Activist investors surround Kohl and demand a change in leadership. A sale of the company may be on the horizon.
“We are seeing a company that has gone astray,” said Jonathan Duskin, managing partner of Macellum Advisors, an activist investment firm that has become Kohl’s third-largest shareholder.
Macellum and a group of activist investors acquired a stake in Kohl’s last year. The group reached an agreement with Kohl’s in April, but recently Macellum has resumed its efforts to overhaul Kohl’s due to the continued drop in share prices and loss of market share.
Kohl “should be better than Macy’s, not worse,” Duskin said. “We see a lot of initiatives that sound good but never actually lead to growth.”
In a statement, Kohl’s spokesman criticized Macellum, saying the firm “used misinformation, volatile and empty narrative” to push for changes that would not improve Kohl’s position and lead to “poorly qualified and inexperienced” boards of directors.
A spokesperson said Kohl’s has made “substantial progress in transforming our business and positioning the company for long-term success.”
“We are already making progress,” the spokesperson added, pointing to the company’s record earnings in 2021, the operating margin achieved two years ahead of schedule, and the increase in the company’s quarterly dividend.
Kohl’s is trying to turn things around once again, but its success is far from guaranteed.
Fighting the tide
With over 1,100 US stores and approximately $19 billion in annual sales, Kohl’s is the largest department store chain in the United States.
The department store sector has been in structural decline for years due to pressure from Amazon, growing large chains including Walmart (WMT) and Target (TGT), and discount clothing stores such as TJMaxx. Companies such as Sears, JCPenney, Neiman Marcus, Barney’s and others have filed for bankruptcy in recent years.
Department stores, including Kohl’s, have been underpriced by discount players below and prestige by luxury stores upstairs, said John Fisher, senior lecturer at Boston College’s Carroll School of Management and former CEO of Saucony sneakers.
“It’s hard to be unique,” Fischer said. “I think Kolya is going to be caught dead in the middle right now.”
According to UBS, Kohl’s has lost about 17% of its market share since 2011, mostly due to retailers like TJMaxx (TJX) as well as Amazon.
“[F]Factors such as consumer migration to online and value preference contributed to this deterioration,” UBS analyst Jay Sole said in a recent report. “This is likely to continue beyond the pandemic.”
Since Gass, Howard Schultz’s former deputy at Starbucks (SBUX), took over as CEO of Kohl in 2018, the company has made several attempts to win customers and keep competitors out. expanded its sportswear business to include brands such as Nike (NKE) and Under Armor (UA). Kohl’s has also downsized several stores and leased out additional space to Aldi and Planet Fitness, made a big game for millennials with new brands like PopSugar, and most recently opened Sephora beauty salons inside Kohl’s.
These strategies have not led to major improvements. Kohl’s improved its business in sports and other areas, but its womenswear business plummeted.
In 2018, sales increased by 0.7% compared to the previous year. They fell 1.2% in 2019 and fell 20% in 2020 due to store closures and Covid-19 restrictions.
Last year, after stores reopened and shoppers updated their wardrobes, sales rose 23%, but that’s still below pre-pandemic levels.
Competition has become more cutthroat in the four years since Gass took over, and “many Kohl stores are tired,” said Neil Saunders, managing director of retail at GlobalData. “It was very easy for customers to switch from Kohl’s to others that offer something better.”
He added that partnerships with Amazon and Sephora do not solve the underlying problems. “Kohl’s needs to strive to improve its own brand, rather than relying on others to elevate it.”
Is there a sale coming up?
Over the past few months, activist investors have been pushing for change at Kohl’s.
One firm, Engine Capital, has called on Kohl’s to spin off its e-commerce business from its stores or find a buyer to take the company private. “Even the most patient long-term shareholders cannot bear the penalty for the inefficiencies and constant value cuts seen at Kohl’s,” Engine Capital said in December. A month later, Macellum Advisors said it would appoint new Kohl’s board members because Kohl’s board and management had “wasted another year mismanaging the business.” Private equity firms also made offers to buy Kohl’s, which the company rejected.
To counter the pressure, Kohl laid out plans for a “complete rethinking of our business model and our brand” last week at Investor Day.
Kohl’s said it will add Sephora mini-stores to approximately 75% of its 1,100 U.S. stores, open 100 new outlets at half the size of its traditional outlets in the next four years, and increase its popular Kohl’s cash rewards program to 7. 5% off purchases. up to 5%. Kohl’s also introduced new strategies for online growth, including self-service for takeaways and returns.
“We are evolving our position from a department store to a more focused lifestyle concept based on an active and laid-back lifestyle,” Gass said at the presentation.
But Duskin of Macellum Advisors found the plan “disappointing.”
He believes the strategy will not change how consumers perceive Kohl’s and says it’s time for a new board of directors and possibly a new CEO. Kohl’s hasn’t taken full advantage of its location away from traditional malls that are losing traffic, he said, and he doubts the investment in Sephora is worth the cost.
Last week, Kohl’s said it had hired more than 20 potential buyers for the company, indicating strong interest. Hudson’s Bay Co., which owns Saks Fifth Avenue, is also considering the offer, Axios said on Wednesday.
Kohl’s board is in “an ongoing dialogue with potential bidders” and will compare any offers against their own “compelling separate plan,” a spokesman said.
Duskin expects Kohl’s to accept a buyout offer, he said. “This company can easily be flipped.”