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*Kohl's '''opened 56 stores''' and closed two stores in 2009, ending the year with a total of 1,058 stores, 54 more stores than it had at the end of 2008. In 2010, the company plans to open approximately 30 new stores. *Kohl's '''opened 56 stores''' and closed two stores in 2009, ending the year with a total of 1,058 stores, 54 more stores than it had at the end of 2008. In 2010, the company plans to open approximately 30 new stores.
-===FY2010 (Ended May 1, 2010)<ref name=Q12010>[ KSS Q1 2010 Report]</ref>===+===Q1 2010 (Ended May 1, 2010)<ref name=Q12010>[ KSS Q1 2010 Report]</ref>===
*First quarter '''net income increased 45%''' from $137 million in Q1 2009 to $199 million. The company attributes the increase in earnings to stronger sales as a result of increasing consumer confidence, better inventory management, and private/exclusive brand selling strategies. *First quarter '''net income increased 45%''' from $137 million in Q1 2009 to $199 million. The company attributes the increase in earnings to stronger sales as a result of increasing consumer confidence, better inventory management, and private/exclusive brand selling strategies.

Revision as of 08:25, May 20, 2010

Kohl’s (NYSE: KSS) is a U.S. department store chain that sells a mix of items including men's and women's apparel, home decor, and accessories. The department store appeals to middle-class consumers by selling discounted branded and private label clothing and home goods.[1] The company's 2009 net sales of $17.2 billion[2] puts it in the same category of national department store competitors such as J.C. Penney (JCP) and Macy's Inc. (M).

At the end of 2009, Kohl's operated 1,058 department stores[3] all of which were in the US, with the greatest number of stores in the Midwest region. In 2009, the company opened 54 net new stores.

At the end of 2007, the U.S. economy slipped into a recession, during which retailers suffered from declining consumer spending, and Kohl's was no exception.[4] Kohl's has no stores outside of the US which means that it is particularly vulnerable to US economic fluctuations because it does not have an international presence to serve as a buffer to such changes. As a result of the slowdown, Kohl's same store sales and number of transactions fell 6.9% and 5.9% respectively in 2008.[5] However, Kohl's discounted pricing has allowed it to ride out the storm better than some of its department store counterparts -- Kohl's reported a 4.8% increase in net sales and 0.4% increase in comparable store sales in 2009 while competitor Macy's Inc. (M) , for example, reported a 5.6% decline in net sales for the year.[2][6]

Company Overview

Business Financials

Kohl’s operates specialty department stores and an e-commerce site in the United States that sell moderately-priced branded and private label merchandise. The company's total revenues topped $17.2 billion in 2009, a 4.8% increase from the previous year.

Business Segments

Kohl's reports its sales in six different business segments:[7]

  • Women's (32% of net sales)
  • Men's (19% of net sales)
  • Home (18% of net sales)
  • Children's (13% of net sales)
  • Accessories (10% of net sales)
  • Footwear (8% of net sales)

Kohl's stores and e-commerce site carries a variety of clothing, accessories and home goods. The company's merchandise offerings include products from branded manufacturers, such as Nike, in addition to exclusive and private label brands that Kohl's wholly owns or co-owns with outside partners, such as designer Vera Wang and the Chaps brand that Kohl's offers exclusively from Polo Ralph Lauren (RL).

Business Growth

FY2009 (ended January 30, 2010)[2]

  • Kohl's net income increased 12% in FY2009 to $991 million from $885 million in 2008, despite facing tough conditions during the economic downturn. The increase was mainly due to higher same store sales and improvement in inventory management, which were offset by higher SG&A expenses.
  • Net sales were $17 billion in 2009, up 4.8% from net sales of $16.4 billion in 2008. In a challenging recessionary environment, Kohl's benefited from its role as a discounted department-store retailer and continued to target its customer base of price-conscious middle-class consumers. The company's "Only at Kohl's" brands has continued to sell well and generate more revenue. Higher sales was primarily a result of a 0.4% increase in same store sales for year.
  • Comparable store sales increased by 0.4% during 2009, a 730 basis point increase from the 6.9% decline in 2008. Growth in comparable store sales was particularly strong in the Southwest region as a result of the closure of Mervyn's department stores, a former competitor of Kohl's.
  • Operating profit for 2009 was $1.7 billion, and operating margin was 10% of net sales. This is a 60 bps increase from levels in 2008, during which operating profit was $1.5 billion, or 9.4% of net sales. Under pressure from the weak retail environment, Kohl's sought to maintain its merchandise margins through cutting costs and maintaining price-competitive brand images. Operating profit still managed to rise despite a 5.3% increase in SG&A expenses.
  • Kohl's opened 56 stores and closed two stores in 2009, ending the year with a total of 1,058 stores, 54 more stores than it had at the end of 2008. In 2010, the company plans to open approximately 30 new stores.

Q1 2010 (Ended May 1, 2010)[8]

  • First quarter net income increased 45% from $137 million in Q1 2009 to $199 million. The company attributes the increase in earnings to stronger sales as a result of increasing consumer confidence, better inventory management, and private/exclusive brand selling strategies.
  • Kohl's net sales increased by 10.9% to $4.04 billion and comparable store sales increased 7.4% for the quarter.
  • Gross margin was 38.1% of net sales or $1.5 billion, compared to $1.37 billion or 37.6% of net sales in the previous year's quarter.
  • In the first quarter, Kohl's opened 9 new stores increasing its total to 1,067 stores. At the end of the first quarter last year, Kohl's operated 1.022

Trends and Forces

Can Kohl's Benefiting from Mid-Price Positioning in Recessionary Environment Continue in Recovery?

Kohl's performance in FY 2009 during the recession has been superior to several other department stores; in particular, stores with higher-priced goods that target upper-class customers and aspirational middle-class shoppers have been struggling as shoppers cut back on their spending by trading down to lower-priced merchandise. For example, luxury department stores like Nordstrom (JWN) and Saks (SKS) had negative same-store sales in 2009, at -4.2% and -14.7%[9][10] respectively. Kohl's has been able to protect itself from experience such drastic declines by luring cost-conscious customers into its stores with its moderate prices. That is why in 2009, Kohl's comparable store sales increased by 0.4%[2]

However, Kohl's faces challenges as the economy steadily recovers in 2010. A strengthening economy means higher consumer confidence and a greater willingness to pay for discretionary and higher priced items. Because Koh'ls is a discount retailer, it stands to lose the price conscious customers it attracted during the recession. If Kohl's cannot stop these customers from shopping at higher priced retailers as the economy grows, the company's bottom line will be adversely affected.

Growing Kohl's Exclusive and Private Brands

In 2009 exclusive and private label merchandise accounted for 44.3% of Kohl's sales, a figure Kohl's plans on increasing in 2010 by adding new exclusive brands like Helix, Mudd, Dana Buchman, and Hang Ten.[11]

Department stores are increasingly seeking to distinguish themselves and earn higher profit margins by offering exclusive brands and private label brands. Exclusive brands are brands marketed under the wholesaler's name that are sold only in a particular chain; one exclusive brand at Kohl's is the Chaps line by Polo Ralph Lauren (RL). Private label brands are produced by wholesalers, but sold under the brand name of the retailer. Exclusive brands such as Simply Vera by fashion designer Vera Wang, can help draw customers into Kohl's stores, as the products can only be found at Kohl's. Kohl's own private label products are typically priced lower than branded merchandise, but have a higher profit margin for Kohl's as the retailer is able to receive the good at a lower cost by avoiding branded manufacturers.[12]

Department Store Migration to Off-Mall Locations

At the end of 2009, only 73 of its 1058 stores were located in traditional malls; the remaining operating 985 were located off-mall locations.[13] This aspect of Kohl's business strategy differs greatly than that of any of its closest competitors. For example, J.C. Penney (JCP) operated 1,108 stores at the end of FY09, only 92 of which were off-mall,[14] but, JCP is trying to catch up to Kohl's as 16 of their 17 new stores in 2009 were off-mall.[15] As Kohl's is ahead of the curve in this trend, it is positioned to take away market share from its competitors and capitalize on consumer's preference for off-mall stores.

Since the 2000's began, consumers have shifted their shopping habits to strip-malls and shopping centers rather than traditional malls.[16] Department stores are traditionally attached to malls, but have begun moving out into shopping centers and other "off-mall" locations to follow the changing customer's shopping patterns. Off-mall stores are cheaper to operate than traditional mall-based department stores, due to smaller real estate costs and less in-store employees, and offer consumers convenience by serving as a one stop shop. Kohl's is well positioned to gain from this trend as almost all of their stores are in off-mall locations.


Kohl’s is one of the smallest national department store retailers. It competes primarily against other department stores, but also is facing increasing competition from discounters and mass merchandisers like Target (TGT) and Wal-Mart (WMT) as these companies grow their clothing and home goods categories.

Kohl's primary competitors are moderate-priced department stores, J.C. Penney (JCP), Macy's Inc. (M) and Sears Holdings (SHLD). Kohl's main points of differentiation from these other companies is Kohl's usage of the off-mall store model and low prices. These factors have played key roles in Kohl's ability to cope with recessionary environment while its competitors have lost more sales than Kohl's as shoppers trade down and visit malls less frequently.

  • J.C. Penney (JCP) is Kohl's closest competitor in terms of size, with roughly the same amount of sales and stores ($17.6 billion; 1,108).[17] J.C. Penney's prices are slightly higher than Kohl's and the company carries more prominent brand name merchandise, although the company counteracts this by having its own exclusive and private label products a significant portion of its merchandise; private label products represented 44.3% of total sales in 2009[18] Almost all of J.C. Penney's stores are located in malls, but the company is moving to an off-mall model with over 90% of new stores being opened in off-mall locations.
  • Macy's Inc. (M) is larger than Kohl's in terms of sales ($23.5 billion in FY09) and number of stores (850 at end of FY09).[19] Macy's carries a much larger variety of branded merchandise than Kohl's, with extensive offerings from Polo Ralph Lauren (RL), Calvin Klein, Kenneth Cole Productions (KCP) and other fashion brands. Consequently, only 19% of Macy's sales in FY09 were from private label merchandise[20] Macy's is a mall-based department store chain, with no announced plans to engage in the off-mall trend.
  • Sears Holdings (SHLD) is the largest department store company in North America, operating both Sears and Kmart stores. SHLD received over $44 billion in net sales in 2009, ending the year with 3,931 store locations in the U.S. and Canada.[21] SHLD's stores focus more heavily on home goods and appliances than clothing, a major point of differentiation between Dillard's and SHLD. SHLD's stores are traditionally mall-based, but the company has been opening off-mall locations to investigate the off-mall trend.


  1. KSS 2009 10-K "Business" pg. 3
  2. 2.0 2.1 2.2 2.3 KSS 2009 10-K "Selected Consolidated Financial Data" pg. 20
  3. KSS 2009 10-K "Stores" pg. 11-16
  4. Wall St. Journal "NBER Makes It Official: Recession Started in December 2007" 1 December 2008
  5. KSS 2008 10-K pg. 18
  6. M 2009 10-K
  7. KSS 2009 10-K "Business" pg. 3
  8. KSS Q1 2010 Report
  9. JWN 2009 10-K "Selected Financial Data" pg. 15
  10. SKS 2009 10-K, pg. 23
  11. KSS 2009 10-K "Strategic Committees and Initiatives" pg. 3-4
  12. Tuck Business School at Dartmouth, Faculty Opinion: Private-Label Products in the Manufacturin-Retailer Power Balance
  13. KSS 2009 10-K, pg. 15
  14. JCP 2009 10-K, pg. 12
  15. JCP 2009 10-K, pg. 32
  16. USA Today "Shopping shifts to 'off-mall' stores" 25 April 2004
  17. JCP 2009 10-K, pg. 11
  18. JCP 2009 10-K, pg. 20
  19. M 2009 10-K, pg 15
  20. M 2009 10-K, pg. 18
  21. SHLD 2009 10-K, pg. 19
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