Though Kohl’s seemed to be on the verge of charting a radically new course earlier this year when the retailer was punching dance cards left, right and center, now the Wisconsin company is busy figuring out how to maximize its Sephora-centric strategy, make money off its asset, and get inventory in shape for the holidays and beyond.
At the Goldman Sachs Global Retailing Conference Wednesday in Manhattan, chief financial officer Jill Timm pulled back the curtain on the department store retailer’s problems and priorities.
Like other industry names burned by bogged-down supply chains, Kohl’s is taking a fresh look at how to safeguard against future disruption, according to Timm.
“We’ve moved and added a lot of countries,” the executive said of Kohl’s sourcing strategy. “Our top countries now are really Vietnam and Bangladesh, moving out of China to have some more flexibility,” though the chain is “also looking for things more in the Western Hemisphere so we can get close to the United States.”
Kohl’s is considering Central America production as way to short transit times. And while it was overly dependent on West Coast ports, now it’s tapping more of the East Coast’s marine gateways to skirt cargo delays. “So we have more ports available to us, and we’ve added more carriers and as well,” Timm said.
Meanwhile, Kohl’s hasn’t ruled out using its real estate holdings to drum up some cash, with Timm confirming the company is talking to “20 different parties” as part of “competitive process.” Options under consideration include an asset sale-leaseback and examining its distribution network.
Timm is a fan of the flexibility that comes with short-term leases. “Most of you in this room would not advocate that I sign a 20-year-lease because 20 years ago when I started in retail, our digital business didn’t exist,” she told attendees. Since there’s no telling what the next two decades will bring, “I want to make sure that I give us the financial flexibility to run this company for the long term,” she added.
Timm also discussed how Kohl’s approaches its well-known focus on activewear.
“We believe in the active and casual lifestyle, but not to look at it literally as I’m going out running to be active,” she said, noting that Kohl’s is trying to serve consumers who want to “live more casually.”
And despite its reputation as a go-to for athleisure with Nike, Under Armour and Adidas driving business, “We’re actually the No. 1 vendor for Levi’s,” she pointed out. After recently adding Tommy Hilfiger, Draper James and Eddie Bauer, Kohl’s wants to broaden investments in home as its tests kids’ bedroom, pet and storage products.
Kohl’s wasn’t immune to the “big change” in June that spooked inflation-wary consumers into tightening the pursestrings, Timm said. People spent less per trip despite more frequently visiting stores and opting for proprietary brands like Sonoma and Jumping Bean where opening prices “stand for value,” she said.
The company is also trying to revise its promotional ways, to some degree, by “using offers that are more personalized, more targeted and really driving consumer behavior,” Timm said, describing July as the retailer’s “best performing” month.
The big lesson here? Don’t try to turn customers into mathematicians.
Asking shoppers to figure out the final price after factoring in a 20 percent coupon and a separate category-specific discount was a tall order. “That’s a lot of stacking that didn’t work for the customer,” Timm said. Now customers don’t have to worry about doing these kinds of calculations.
Discounts are also shrinking as a way to help Kohl’s manage inflation without alienating customers. “So if we had given you a 25 percent off coupon last year, and you get a 20 percent off coupon this year, it’s a way to [operate] without really changing anything and the consumers are still seeing value in that supply,” Timm said.
Much of Kohl’s capital spend is going to Sephora shops as it works toward a $2 billion beauty business.
“We opened 200 doors last year and when they opened in fall of 2021, they actually were outperforming the balance of chain by a mid-single digit [and] those same 200 doors are outperforming down the chain by a high-single digit,” Timm said. “I look at that momentum as really being built off of those incremental trips and those new customers coming in, and then we’re seeing that 50 percent of those customers buying Sephora were putting another item in their basket, and that’s really coming from active, women and home.”
Though Kohl’s added 400 Sephora shops in the second quarter, it will have 600 open for business in time for the holidays. “We’re working with Sephora on how we can put Sephora in all of our stores. So we have 250 stores remaining that will get the 2,500 square foot shop, but then we’re going to put a smaller presence in all of our stores [and] hopefully we’ll start seeing that in [2023 to 2024],” Timm said.
The Sephora partnership will soon expand to include products for men, a customer the beauty name doesn’t typically serve today, Timm said. A search of the Sephora sites shows 108 men’s skincare, fragrance, shaving and hair products. Timm said the expansion makes sense given Kohl’s “strong men’s business.”
Kohl’s wants to pump up the incremental opportunity around its traffic-driving Amazon partnership with plans to add product displays near the returns area to promote impulse purchases and introduce newbies to Sephora. “Both Amazon and Sephora have brought us a new younger customer, and they’re both also trip drivers so [they] drive a lot of traffic to the store,” Timm said.
Kohl’s is being cautious with stock for the foreseeable future. “We’re gonna take a pretty conservative approach, especially with inventory,” Timm said. The company is planning to “buy conservatively” while holding reserves and chasing according to demand.
“The good news right now is inventory is plentiful. Everyone’s pulling back,” Timm said. Kohl’s will work the national brands driving 60 percent of it business on managing product receipts while mostly holding owned labels it can easily tap as needed.
“We’ve done this in the past and it’s worked really well,” she added. “I think all retailers love to be able to do that versus having to make those buys early. And I think a lot of us have been cutting down our supply chain timing.”