By Neil Saunders
With high growth of both total and comparable sales, Kohl’s has ended its fiscal year on a high note. The overall sales number is flattered by an additional week of trading, as is the net income figure. However, even when this week is stripped out, total sales still grew by 6.5% and net income by 79.8%.
The thinning out of the range and the incorporation of more branded products helped boost footfall and conversion rates over the holidays.
Although Kohl’s has been on a good trajectory for some time, these numbers go well beyond the steady improvement seen over the rest of the fiscal. They represent a sharp leap in performance. Some of this is undoubtedly due to the more robust trading environment over the holiday period, but Kohl’s also deserves credit for various initiatives that have allowed it to capitalize on the benign economic climate.
More branded products, taking Amazon returns
Foremost among these are the improvements in the in-store offer, with the thinning out of the range and the incorporation of more branded products both helping to boost footfall and conversion rates over the holidays. From our data, it is clear that Kohl’s attracted more gift buyers both online and in-stores. Self-purchasing of products like partywear and home furnishings for the holidays were also strong.
Some more radical steps, such as allowing Amazon returns in some stores and the introduction of Amazon shop-in-shops, also paid dividends. While the limited rollout of these services across the estate meant that the financial contribution was small, it was nonetheless helpful. This kind of thinking also shows that Kohl’s understands the need to give customers reasons to visit stores and is not afraid to experiment to achieve this.
Away from shops, digital was the star of the show and was the underpinning of Kohl’s better numbers. Again, the more prominent presence of branded products helped to drive traffic to the website. Omnichannel services, like collect in store, were also highly valued by customers seeking convenience over the holiday period.
Kohl’s marketing also deserves mention for the role it played over the holidays. Focusing on both the benefits for gift receivers and gift buyers (who could get Kohl’s Cash) went down well and won over some customers.
Tight expense control, fewer markdowns
On the bottom line, a combination of tight expense control and fewer markdowns and promotions helped to boost both operating and net income. A better lineup of desirable products and careful inventory control reduced the need for discounting. Both these things have also allowed Kohl’s to enter the new fiscal year with a much cleaner inventory position.
As positive as the results are, the question now is whether this type of performance can be maintained. It cannot – at least not at this level. We view the final quarter as somewhat of an exception brought about by a fortunate combination of circumstances including confident consumers, weak prior year comparatives, and the additional week of trading.
But we believe Kohl’s will be able to post credible numbers on both the top and bottom lines. In the year ahead, we expect comparable numbers to be up by low single digits. The profit outcome should be a bit punchier, not least because expense savings and less discounting will continue. Overall, 2018 will be a reasonable year for Kohl’s.
Neil Saunders is managing director of GlobalData Retail.