The woes of Sears and J.C. Penney highlight the challenges facing the mid-priced department store sector, but Kohl’s is determined to buck that trend.
The retailer’s shares jumped 7.3%, making it the biggest S&P gainer on Tuesday, after the company reported better-than-expected fiscal-fourth-quarter results. It also said Planet Fitness would open up to 10 locations next to its stores this year as part of Kohl’s move to shrink its stores and lease or sell vacant space to other businesses, including German discount grocer Aldi, that it hopes could bring shoppers to its stores next door.
“Driving traffic is our No. 1 priority,” Kohl’s CEO Michelle Gass said on a conference call Tuesday. “We see the rightsizing strategy as a large opportunity for Kohl’s.”
The partnership with Planet Fitness could be even more relevant at a time when Kohl’s itself is aggressively expanding its “active business,” which Gass calls “a key growth driver.” She said Kohl’s has continued to gain market share in the category, which jumped “in the high-single digits” last fiscal year to represent 20% of the company’s total. She said Nike, Under Armour and Adidas all posted higher sales in the quarter that ended Feb. 2 while fitness trackers led by Fitbit “continued to perform really well.”
With that fervor from consumers, just think of the potential opportunities Kohl’s may have with Planet Fitness, which has over 12.5 million members nationwide. Gass said Kohl’s would work with the chain to “take advantage of the co-location” and figure out ways to “co-market” to customers.
It sounds “very innovative,” Cowen & Co. analyst Oliver Chen said on the call, asking Gass if the partnership could expand to more stores sooner. “Our surveys indicate such broad appeal to this concept, and it’s a great (comparable sales) and unit growth story. It seems like a really win-win.”
What Kohl’s is doing also highlights a bigger industrywide trend. Malls are adding coworking spaces, gyms, supermarkets and marquee restaurants as tenants to attract more visitors.
In another effort to drive traffic as it capitalizes on the growing fitness and wellness trend, Kohl’s in January inked a “strategic collaboration” with WW, formerly known as Weight Watchers, to open a WW Studio inside a Kohl’s store and unveil a line of WW Healthy Kitchen products at its stores and online.
And the benefit is mutual. “Offering our Workshops through a WW Studio at Kohl’s is a new way for us to meet people where they are,” WW president and CEO Mindy Grossman said at the time, adding that the two companies share customers.
Addressing Kohl’s closely watched one-year-old partnership with Amazon to take and process its returns, a service now available at about 100 Kohl’s stores, Gass said Kohl’s continues to be in talks with the online giant. “The most important thing that we’re seeing is how excited our customers and the Amazon customers are about the service,” she said. “It takes a lot of the hassle out of returning items. … (But) it really needs to be a win-win for both.”
After witnessing “a great Black Friday with Amazon devices,” Kohl’s plans to sell a broader assortment of Amazon devices in more than 200 stores, Gass said. However, this time Kohl’s will sell them via a wholesale arrangement in a “self-serve” space instead of in a manned in-store boutique concept, in yet another sign that tech gadgets will be a bigger product feature in the traditionally fashion-focused department store sector. Macy’s b8ta in-store shop is another prominent example.
On the other merchandise front, Kohl’s said it will unveil its EVRI private-label collection as well as a plus-sized Nike line targeting women size 14 or larger, a growing market that many retailers are eager to tap into.
To lure its key target customer group of millennial moms, Gass said Kohl’s this year will test an “outfit bar” in about 50 stores to include brands favored by millennials—including LC Lauren Conrad, Levi’s, Nike and Adidas—and update assortment in the space every 30 days.
The company also plans to unveil a Nine West line of shoes, handbags and an exclusive apparel line to attract millennials, Gass said.
“We are working from a position of strength,” she said.
Gass looks right so far. Kohl’s has posted two straight years of sales gains, which the company said is its largest increase since 2010.