Kohl’s customers have voted with their wallets: they want more national brands. And it looks like the Wisconsin-based department store retailer is prepared to give them what they want.
Company CEO Kevin Mansell told analysts during Kohl’s first quarter 2014 conference call last week, “We’re pleased with the results that we’re seeing in our national brands since renewing our emphasis on them last fall.” He added, “For the third consecutive quarter, national brand penetration increased. The national brands reported a higher comp result than our private and exclusive brands. We continue to make investments in national brands increasing their inventories while reducing our private and exclusive brand inventory.”
The three main pillars of Kohl’s business are convenience, value and brands. The first two of these are indisputable. Stores are about as convenient as they can get, located in strip malls in close proximity to their customers’ neighborhoods. Their one-floor, circuit layouts and central checkouts make them easy to navigate for working moms, for example, who need to get in and out quickly. And there are deals galore. Between weekly percent-off coupons, Kohl’s cash (loyalty dollars that can be applied to future purchases) and regular weekly sales, Kohl’s has the value part more than covered.
On the branding front, though, Kohl’s may have fallen behind the competition. Customers have begun to tire of its private brands like Sonoma, Apt 9 and Croft & Barrow. Its designer labels, like Simply Vera Vera Wang, Daisy Fuentes, and Dana Buchman and others, have also begun to lose their luster. According to Mansell, “Competition has intensified. Consumer behavior is shifting and expectations surrounding choice continue to be raised…We’ve always had amazing product but our customer’s wants and needs continue to evolve.”
Mansell announced that the company is on track to launch the IZOD brand in men’s and the Juicy Couture brand in women’s, as well as a capsule program with Elie Tahari. These new brands will join others like Fila, Chaps, Speedo, Nike, OshKosh B’Gosh, Rock & Republic, Dockers, Levi’s, Union Bay and many others, and will hopefully help drive store traffic.
After announcing that first quarter sales fell 3.1% to $4.1 billion and earnings declined 15 percent to $125 million, CFO Wes McDonald said the company’s biggest challenge of late has been sales. Severe winter weather and a rapid shift toward online shopping kept many value-conscious consumers out of stores. Kohl’s transaction count per store fell 4.5% in the period, even though its much smaller online business grew by double-digits. McDonald added, “We have lost some traction with our core customers as the place to get great brands they recognize.”
Michael Dart, a partner at consulting firm A.T. Kearney and co-author of the book The New Rules of Retail, said, “It has become increasingly difficult to be successful in the mid-tier market.” He added, “Retailers like Kohl’s are being nipped at from below by low-cost discounters, and from above by upscale department and specialty stores. Many of their so-called private label ‘brands’ are still in the process of becoming brands — in the strict sense of the word. They need to be invested in and sufficiently capitalized and marketed like real brands, to avoid becoming commodities. This is a real challenge.”
Dart feels, however, that these stores have an opportunity to license and/or exclusively distribute national brands that traditional department stores used to carry but have either dropped or de-emphasized.
“There are a lot of brands out there that have several more years of life left in them. They can be re-launched in mid-tier stores like Kohl’s, and have enough consumer awareness to command a bit of a price premium. It gives the stores’ value-conscious customers a reason to buy, and it positions Kohl’s as a source for brands. It’s really a win-win,” Dart said.
Mansell also announced plans to strengthen the management team, which will include hiring a new Chief Merchandising Officer, and to continue focusing on the customer experience both within the store and online. To that end, the company has invested almost $600 million in technology to make that experience better than ever.