It’s not all doom and gloom in the retail industry, but few retailers have had such positive press for their success as Kohl’s. Its success can be attributed to a number of factors. I’ve outlined a few below.
Smaller Store Formats: Simplify to Amplify
Kohl’s has taken an approach of shrinking hundreds of its 1,160 stores from around 90,000 square feet to around 60,000. The company is also testing an even smaller format of 35,000 square feet at 12 locations. If successful, it could roll more of these out to new markets including city centers.
The idea of shrinking a store footprint seems simple in principle, but it can be quite challenging. The company needs to rethink every assortment and piece it keeps in the store. Essentially they need to do more with less. They need each choice count to work extra hard.
I recently discussed this with Oliver Chen, managing director and senior equity analyst covering retail and luxury goods at Cowen Inc., a diversified financial firm. Oliver said:
They are doing well by selling more with less inventory. Simplicity is a theme we are going to see expanding in the industry. Customers don’t want to have the anxiety of too much choice or to have choice that’s filtered or customized by their individual preferences or needs.
In many situations, retailers and brands can simplify to amplify. They can do this by using science to drive decision making. We are seeing the transformation of the merchant in the buying role. Rather than solely relying on their gut, they are using data to make more informed decisions, allowing them to rationalize their ranges with more confidence."
Customer-centric merchandising platforms that integrate the voice of the customer can help organizations get a better understanding of how each SKU will perform and what could be more productive.
Target, Macy’s and Nordstrom have all moved ahead with smaller store formats, so Kohl’s is not alone in this approach.
Forging Partnerships: Strange bedfellows? Not really.
Kohl’s has embraced the strategy of aligning with other companies to get to new customers and strengthen its relationship with existing ones.
The company has had a partnership with Amazon to accept returns in 82 Kohl’s stores, and Kohl’s opened Amazon smart-home boutiques in 10 stores in the Chicago and Los Angeles metro areas.
When these initiatives were first announced, many were skeptical of how successful they would be. However, just last week, the company announced that it would be expanding these two programs given their success in growing sales and earnings.
Another perhaps unlikely partnership? Aldi. This alliance is certainly a sign of a new era of retail. The partnership is actually quite brilliant, when you consider Kohl’s interest in moving to smaller store formats.
As you’re likely aware, many of the Kohl’s stores are located in strip or power center locations across the country, prime locations for grocers. Aldi is able to use the additional square footage in some of these Kohl’s locations to set up shop.
An interesting tidbit: Kohl’s began as a grocery store chain in 1946 before opening up its first department store in 1962. Everything is cyclical.
Lastly, Kohl’s has embraced partnerships with PopSugar, FAO Schwarz and LEGO to broaden certain segments.
As I’ve written about before, Millennials are and continue to be a major driver of spending potential. Kohl’s partnership with PopSugar, the women’s lifestyle site, shows that they see this segment as a big opportunity. Interestingly, designs for the new line are created by PopSugar social media analysis to predict popular fashions.
Finally, its partnerships with FAO Schwarz and LEGO could help consumers who are still navigating where to make purchases following the demise of Toys R Us.
Test-Read-and-React Strategy
In the conversation with Oliver Chen referenced above, we talked a lot about how the most successful retailers, like Kohl’s, are taking a back to basics approach.
Following that conversation, we saw more from Cowen regarding Kohl’s success. In the company’s brief they stated:
Cowen believes retail is about having the right products, at the right time and place – and we are impressed with KSS’s test-read-and-react product strategy which we view as a competitive advantage for product selection, elimination and speed of innovation."
Kohl’s is increasingly relying on data to make more informed decisions, allowing them to rationalize their ranges with confidence.
Kohl’s continues to make waves in the retail industry with some very strategic approaches to its business. As the industry continues to evolve, it will be interesting to see if they can keep up. As long as they maintain the basics – right product, right price, right time – at their core, they’ll continue to flourish.
