Kohls Corp. shrinks the box, tackling the wearable industry and mining data science for customization, among other things. So said Michelle Gass, CEO of the retailer, in an in-depth interview following the company’s annual Investor Day. Kohl’s also introduced new long-term financial goals of single-digit sales growth and mid- to high-single digit EPS growth.
Gass said Kohl plans to grow Sephora, the in-store beauty concept he added to locations, to a $2 billion business across more than 850 stores while continuing to expand omnichannel capabilities with the launch of free -service, buy online, pick up in store at all stores. The Kohl’s Card rewards benefit is being increased to 7.5% every day, and the retailer has committed to net zero emissions by 2050.
Kohl’s has been testing and experimenting with small-format stores for a few years, so the retailer isn’t just shrinking the Kohl’s experience from 85,000 to 35,000 square feet. “We made sure to get it right and stay true to the Kohl’s brand, bringing in the relevant products, categories and brands to meet what this local community is looking for,” Gass told me. “The example I used, the Seattle-area store, will have a bigger out-of-town presence than you might have nationwide. It will also be an elevated experience with more storytelling and models. We’ll be opening this one this fall, and I’m really excited for customers to experience it.
According to Gass, the in-store Sephora stores have been positive for the company’s beauty business while delivering a single-digit increase in sales across the entire store. About 25% of customers who buy Sephora are new to Kohl’s, and they’re younger and more diverse. “They’re scanning the rest of the store, so more than half of the baskets have another item in them,” Gass said. “The most popular was the active category, the women’s category.”
Kohl’s is on track to open Sephora in 400 doors this year, Gass said, adding that in a very short time, Sephora will be in half of the retailer’s 600 stores. “We will have more [locations] by the end of this year that they don’t have their own independent stores,” she said. “So Sephora’s market as a whole has definitely grown, and I would say the partnership as a whole is going very well.”
One innovation discussed at the Investor Day was the launch of business-to-business BOPIS, “an idea I’m really excited about,” Gass said. “It’s the idea of buying a beauty product on Sephora.com and being able to pick it up at a Kohl’s store.” The retailer has a similar partnership with Amazon where the digital giant’s customers can make returns to Kohl’s units. “It’s extremely powerful and really speaks to the idea of our two brands coming together for a win-win, each bringing their respective strengths,” Gass said of Sephora. “In this case, it’s a solid digital foundation and now those customers have the ability to come and pick up at Kohl’s, and guess what, now we’re getting more traffic and they can see the rest of the store. We’re really confident about the $2 billion opportunity.
Kohl’s continues to hone its image as an active, casual lifestyle destination. “When we first started researching the active category over five years ago, it was a category within Kohl’s larger concept. Now what we’re saying is that we want all of the brand represents the active, casual lifestyle, which includes categories like beauty. We have demonstrated our credibility and partner with the best brands in the industry,” Gass said, citing Nike, Under Armor and Adidas. “Our partnerships n “have never been stronger. And in terms of engagement, when we update a store with Sephora, we also refresh the whole store, we put the asset first. We add space for assets and we get top quality products.”
The casualization of fashion accelerated by the Covid-19 pandemic and working from home are not going away, Gass said. “People want to continue to live comfortably,” she added. “They want to continue to live in an active way. Will they dress up a little more, will they go to dinner or a meeting at the office? Maybe for a meeting outside of their home office, but those essential attributes of comfort will continue, and you can also look really stylish with your sneakers and jeans, which is really on trend. We focus on meeting that customer need and focus the business on it. »
At the same time, Kohl’s tackles the dress sector under the casual lifestyle category and carries work dresses and dresses for weekend wear. “You might not see a lot of prom dresses at Kohl’s, but we will have dresses you can wear to weddings. It’s all about the kinds of comfortable and accessible dresses you expect from Kohl’s, but I would say, the new Kohl’s – elevated, trendy and that sort of thing.
Kohl’s expects its digital business to reach $8 billion in annual revenue, thanks in part to its continued efforts to make it easier for visitors to find brands and make purchases on its website. Kohl’s released its fourth quarter results on Friday, including total fiscal 2021 revenue of $19.4 billion, compared to $16 billion in 2020. For the three-month period ended Jan. 29, Kohl’s reported revenue of $6.22 billion, which was slightly lower than Wall Street analyst estimates.
Gass was criticized by activist shareholders Macellum Advisors and Engine Capital, who argued that Kohl’s underperformed other retailers such as Target, TJ Maxx, Macy’s. Kohl’s shares are up just 6% in the past 12 months, compared to Macy’s stock, which is up 65%. Companies also pressured Kohl to unlock capital by selling some of his real estate and renting it out.
Macellum on Friday called Kohl’s fourth-quarter results disappointing, saying he remained skeptical of the retailer’s future given its current board. But the retailer released better revenue outlook for 2022 despite continued supply chain hurdles. The retailer also said last week that it plans to double its annual dividend and stock buyback by at least $1 billion this year.
Gass said Kohl’s opponents don’t give the retailer credit for the gains he’s made. “If you look at the last year, we made a major pivot and restructured the business,” she said. “It was a pivotal year for us. Our results speak for themselves. We posted all-time record earnings per share of $7.33, well ahead of our 2018 pre-pandemic high of $5.60. We beat the street on an operating margin between 7% and 8%, delivering 8.6%. We are returning significant value to shareholders, which speaks to our belief in the health of the business, and now we are moving forward with a very exciting growth program. I can only say that we see a lot of value in our business, we see the momentum of these initiatives and we are very confident in the future.
Part of that trust comes from the partnerships Kohl’s has forged, not just with Sephora, but with Amazon. The retailer accepts returns for the digital giant’s products, which “has brought in a lot of new customers,” Gass said. “We are very pleased with our partnership with Amazon, which has now been in the making for a few years. What we have seen over time is that conversion is increasing, so the percentage of customers who cross the aisle and buy one of the things that Kohl’s does well is we build great partnerships and Amazon is a great example of where we continue to drive customers and traffic, and [customers] live a world-class experience. Net promoter scores are phenomenal.
Gass called the tie-up with Amazon “a real win-win.” And we continue to look for ways to retain that customer base at Kohl’s. We were talking about Sephora and one of the innovative things we’re going to try is that when a customer makes an Amazon return, we’re going to encourage them to visit the Sephora store. We think about this traffic a little differently, but this partnership has been really good for both companies.
Kohl’s also uses data science to interact more effectively with customers and deliver greater relevance. It’s a company-wide opportunity, Gass said, adding that the retailer will use data science to increase personalization and accelerate localization across its entire store fleet over the next two years. , and will also optimize data and analytics to create a more relevant customer base. experiences, drive higher revenue, higher margin, and greater asset efficiency.
“That’s how we put the store together,” she said. “We piloted this. We are seeing very strong results. Sometimes it’s nice micro changes it might be a few extra accessories for a brand or product but with the type of business we work in it makes a difference so literally every store will have a level of different assortment. ”
Marketing will also be driven by data science, Gass said, noting that the goal is to spend less but spend more with more impact, with personalization a key component. “We email millions and millions of customers,” the CEO said. “We have 30 million people in our loyalty program. Ultimately, the vision is how to personalize each email with products and offers. Humans can’t do that when it comes to tens of millions of people, but machines can when it comes to data science.
Non-mall locations will continue to be a point of differentiation for Kohl’s and a major asset for the brand’s partnerships, whether with Sephora, Amazon or new brands. “What they love are our powerful omnichannel capabilities, which include out-of-mall presence which is very convenient for customers, and our digital platform,” Gass said. “They really work together, so tactically speaking it’s about doing things like Amazon returns or BOPIS or curbside pickup, but I think the real strategic value is when current and new brand partners innovate and how we’re leveraging omnichannel capability together, the 1,200 stores across the country, 1.7 billion website visits We’re creating phenomenal reach for brands, businesses and partners, so we’re looking to continue to grow the business and innovate based on this solid platform.”