By Neil Saunders
While Kohl’s growth is more modest than that posted in the prior quarter, this is still a good set of results that reflects the steady progress being made at the group.
Admittedly, the numbers come off the back of very weak prior year comparatives and were delivered over a period when consumer spending was relatively robust. However, as others like JC Penney have shown, neither of these factors guarantee success. As such, Kohl’s deserves credit for the various initiatives it has put in place to secure both footfall and spending.
Our own data clearly show that Kohl’s is attracting more shoppers than it did a year ago, including among key younger and family age segments. This shift is important as it suggests the recovery at Kohl’s is deep-rooted and not just based on existing customers spending more thanks to tax cuts and bonuses.
One of the things that attracted new customers is the strong line-up of brands that Kohl’s has been showcasing. Many of these, like Under Armour, are popular labels which Kohl’s is able to offer at competitive price points. The expansion of the Under Armour partnership, including a new collection for younger girls under the “She Plays We Win” strapline, should ensure that Kohl’s continues to capitalize on the growth of activewear.
Another initiative that helped to stimulate trade was the Avengers Infinity War collection, which included some merchandise exclusive to Kohl’s. In our view, capitalizing on popular culture is something that Kohl’s has traditionally been good at, so we are pleased to see this continue. Although the range was mostly aimed at kids, the inclusion of some product for both men and women is sensible and underlines the fact that Kohl’s is trying to become a destination for the entire family.
One group that Kohl’s appears to be gaining ground with is Millennials. Here, high profile developments such as the partnership with Amazon have helped to put Kohl’s more firmly on the radar of the younger shopper. However, it is fair to say that the assortment has not always been squarely aimed at this cohort, which means conversion rates from visiting to purchasing have been low. We are encouraged to see that Kohl’s is now making more decisive moves to address this, including the launch of an exclusive new apparel collection with Popsugar in fall. This is a smart move and one that has echoes of Target’s various partnerships with notable brands.
Looking ahead, we maintain our view that this will be a reasonable year for Kohl’s. Sales growth may wane slightly as prior year comparatives become tougher, but there are enough initiatives and programs, including the revamped loyalty scheme, to maintain growth on the top-line. Moreover, the bottom line will continue to see benefits from reduced markdowns and cost savings.
Overall, although Kohl’s operates in a challenging part of the market, it is both an innovative and nimble player. It also has some strategic advantages, like stores in more favorable locations, that should help mitigate wider market pressures. Although it will have to work hard to maintain its performance, we believe that Kohl’s has the will and ability to succeed.
Neil Saunders is managing director of research firm GlobalData Retail.