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Should Macy’s Be Worried About Kohl’s?

A new report pits Macy’s versus Kohl’s to suss out which department store rival has the edge and whether it can keep the upper hand for the long haul.

Last year’s data has Kohl’s beating Macy’s when looking at clothing sales for men, women and children. The former got 60.8 of its sales from apparel, while the latter derived just 39.6 percent, according to a Coresight Research report comparing the two retail giants.

However, Kohl’s could see the tides change now that many consumers who snapped up casual clothing and activewear during the pandemic are turning their attention to styles suited for going to offices and events, where Macy’s can flex its prowess with special occasion styles and more. Still, Sephora could be the wild card for Kohl’s, which recently said half of the shoppers who patronized one of the beauty and cosmetics shop-in-shops added one or more “women’s, active and accessories” products to their basket.

Then there’s the elephant in the room—inflation. Coresight suggests consumers might deal with “inflation creep” by turning to Kohl’s more value-oriented offerings.

“During recent earnings calls, retailers offering value fashion offerings including off-price retailers reported that during the last recessionary environment it took several earnings cycles before consumers began to trade down to value offerings,” the report said. “Thus, we predict that Kohl’s will also experience this trend.”

Kohl’s said inflation clipped average per-customer spend in the first quarter, though its “elasticity pricing model” helps it squeeze more value out of kids’ products and private-label goods, according to the report, which cited dresses’ higher prices. Macy’s, on the other hand, said it hasn’t yet seen inflation cut into customer spending—for now.

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With $25.3 billion in annual revenue, including Bluemercy and Bloomingdale’s, Macy’s is America’s largest department store retailer, with customer ages and income averaging mid-40s and $84,000. It’s turned to Toys “R” Us to help drum up younger consumers in the millennial and Gen Z demographics and invested in smaller stores away from the challenged mall format as well as off-price locations.

Kohl’s still has work to do if it wants to close the revenue rap with its bigger competitor. With $19.4 billion in annual volume, according to the report, the exclusive seller of Levi’s SilverTab jeans attracts a slightly older base with a slightly lower average household income of $79,000. Kohl’s similarly is looking to grow through hyper-local small-format stores using partners like Amazon and Sephora to lure shoppers through the front door. Kohl’s will open its first scaled-down store in Seattle with an expanded outdoor footprint, and sees a $500 million sales opportunity.

What Macy’s lacks in store numbers, it makes up for in size. Kohl’s store fleet dwarfs Macy’s at 1,165 to 570 locations for the latter, where the four walls average 138,000 to 179,000 square feet. That’s as much as twice as large as the average 88,000-square-foot Kohl’s location. Macy’s will open several off-mall sites this year averaging 20,000 square feet.

When it comes to digital, Macy’s has pulled ahead, a fact that wasn’t lost on rapacious activist investors.

“Across store portfolios, Macy’s and Kohl’s saw digital sales increase dramatically, with e-commerce penetration having grown from around 25% of all sales in fiscal 2019 to over 40% overall in fiscal 2020, moderating to low-to-mid 30% in fiscal year 2021,” Coresight said.

Now each company needs to focus on driving traffic across channels and ensuring digital supplements—and doesn’t replace—store revenue. Macy’s is working to get $10 billion out of all its dot-coms by next year, while Kohl’s put a bullseye on $8 billion in digital at some point down the pike, up from $6 billion last year (or 32 percent of total sales). Macy’s, which has invested in its website, merchandising chops and livestream shopping, got 35 percent of first-quarter sales from digital.