Kohl’s has been busy chasing millennial-friendly fashion brands, and now it’s ditching eight labels in favor of the comfy-cozy activewear and athleisure that it believes shoppers will want now—and after quarantine.
The chain is pivoting away from eight “down-trending women’s private brands” that include Dana Buchman, Jennifer Lopez, Mudd, Candie’s, Rock & Republic, Popsugar, Elle and Juicy Couture, said CEO Michelle Gass. The retailer, she said during Tuesday’s quarterly earnings call, is working on the assumption that sales will return throughout the year as “people get more comfortable living in this new normal.”
Digital sales were the star of Kohl’s first-quarter report, following a trend broadly seen across discretionary retailers whose stores shut down in March to curb the coronavirus outbreak. Home continued to be a high digital revenue contributor for Kohl’s, which also saw strength in active, toys, and beauty. Apparel and footwear sales, however, weren’t so positive.
Kohl’s made some changes to its merchandising and design team prior to the pandemic and previously announced new incoming brands like Lands’ End, whose full assortment will be available at kohls.com, in addition to 150 shop-in-shop boutiques. Toms, meanwhile, is expected to resonate with millennial shoppers, Gass said, joining recent additions like Nine West and Elizabeth and James. Shoppers can also find brands such as Sonoma, Simply Vera Vera Wang and Lauren Conrad, which Kohl’s says have remained strong, plus national brands ranging from popular favorites like Levi’s and Nike to Adidas, Under Armour and Carter’s.
Like its retail competitors, Kohl’s focused on its online platform as stores closed.
“We amplified our digital marketing and updated digital site content to be relevant to what customers were interested at this time. We also leveraged our large and growing email file of more than 50 million customers to reach them in new and personalized ways. These efforts paid off. Digital sales increased 24 percent for the quarter and accelerated to 60 percent in the month of April,” Gass said. “All of the key performance metrics were positive, including traffic, conversion average unit retail and units per transaction. And we were pleased to see more new customers and younger customers hopping on our digital platform. Importantly, our stores have built a higher percentage of digital orders, which aided our efforts to reduce store inventory.”
April’s digital acceleration has spilled over into May, she added.
“More than 40 percent of digital orders were fulfilled by ship from store and customer pickup during the first quarter. And this percentage was much higher in April, following the successful launch of Store Drive Up, where we’ve seen great customer uptake. In fact, in the over 900 stores where it is offered, the percentage of digital demand fulfilled by Store Drive Up was 15 percent, exceeding that of Buy Online, Pickup in Store before the crisis began,” she said.
Despite digital’s encouraging trajectory, Gass believes stores will offer an advantage in a post-COVID-19 world.
“Ninety-nine percent of them generated positive four-wall cash flow in 2019,” she said, describing the store base as “financially healthy.” “Another reason is that they are located off-mall, in suburban neighborhoods where our customers live and work. We see this as an advantage as the majority of our stores are located next to high-traffic areas where are customers are already shopping. We also believe the size of our store provides us a unique advantage to facilitate social distancing as customers begin to journey away from home.”
Since May 4, Kohl’s has reopened about half of its stores, which are doing between “50 percent to 60 percent of the productivity that we would typically see at this point in time,” Gass said. She is looking forward to enjoying the halo effect of Kohl’s Amazon Returns program as stores reopen. Gass “expects to see traffic build as customers return items purchased over the last several months.”
In addition to accelerating digital growth, Kohl’s is also “implementing a more tailored approach to local markets.”
The chain store retailer is removing areas that were supposed to drive impulse buys, which will support ongoing social distancing requirements. It’s also leaning into categories that the consumer is responding to, which beyond active apparel and athleisure includes the beauty business.
Gass said the company is cautiously planning for back-to-school and holiday, “bringing in fresh receipts” for both. “We’ll chase into goods as we see what the customer demand is,” she added, admitting that she expects to see considerable promotional activity, given retail’s current inventory position.
Kohl’s has worked with vendor partners to extended payment terms up to 100 days, and “as we now have stores opening as a source of cash inflow…we’ll go back to a normalized payable structure going forward,” said Jill Timm, senior executive vice president and chief financial officer.