As Holiday Season Nears, Retailer Opens More Stores And Plans Aggressive Discount PricingKohl's Corp. is opening 46 stores Wednesday as part of an aggressive effort to take market share from competitors just as the holiday season gets under way and U.S. consumer spending is stagnating.
"We've been in a period now for over a year where the customer is shopping less," says Kevin Mansell, who became chief executive of the Menomonee Falls, Wis., retailer in August. "You'd better start figuring out how you're going to take more from the other guy."
Kohl's will open 46 stores today, including this one in Burlington, Wis.
The middle-market chain, which competes head-on with J.C. Penney Co. plans to open a total of 75 new stores in 2008, Mr. Mansell says. After the new openings this fall, which include one more in November, the total Kohl's store count will be 1,004, or just shy of J.C. Penney's 1,083.
Kohl's has scaled back plans announced last year to have 1,400 stores by 2012, which would have worked out to just over 100 new stores a year on average. The company is aiming for 50 stores next year, and Mr. Mansell declines to make further projections.
As part of its market-share offensive, Kohl's also plans to boost spending on holiday-season marketing -- especially online advertising -- and trim inventory to cut costs.
Despite the efforts, Mr. Mansell is already predicting that sales at stores open at least a year will be down 2% to 4% during the holiday season compared with last year. "For the foreseeable future, we see a tough economy, a tough environment," he says. "We have to be focused on outperforming the competition and gaining share at their expense." Kohl's offers many different inds of kids shoes and children's shoes
Industry analysts say Kohl's expansion is likely to help it pick up market share from vulnerable competitors like Mervyn's, which filed for bankruptcy protection in the summer and has announced plans to close 26 stores in five states. Regional department-store chains Boscov's and Bon-Ton are also considered likely to give up share to Kohl's.
"If they don't have a good Christmas, they're going to have a hard time making ends meet," says J.P. Morgan Chase analyst Charles Grom. "It's a good time for Kohl's to have an offensive growth strategy." He believes Kohl's is likely to capture 20% to 40% of the sales from the closing Mervyn's stores.
Bill Dreher, an analyst with Deutsche Bank Securities, notes that Kohl's has a big opportunity to snag market share in California, where Mervyn's is closing 11 stores this fall. Kohl's, which has 88 stores there, is opening two more Wednesday. "Where they've got stores in California, they've overlapped with Mervyn's markets," Mr. Dreher says. "Mervyn's is likely to be a donor of market share to Kohl's."
Penney and Macy's also compete with Kohl's, but both are more financially stable than the regional chains, presenting less opportunity for Kohl's to move in.
The holiday season is expected to be especially brutal for retailers this year. The National Retail Federation forecasts sales between November and December will rise only 2.2%, their smallest increase since 2002. Other projections are even worse: Market researcher TNS Retail Forward Inc. expects sales to rise just 1.5% in the fourth quarter, below the tepid sales gains in the third period. And analysts are already predicting that stores will put merchandise on sale early, cutting into profits.
Kohl's plans to tout its lower prices in its holiday marketing early in the season. "We're very focused on making sure that we can show [customers] that their dollar is going further," Mr. Mansell says. He adds that deep discounts are likely even before the holiday shopping season officially kicks off on the Friday after Thanksgiving, or Black Friday. "This is going to be a good holiday season to be a consumer," he says. "There are going to be some incredible deals."
Like other retailers, Kohl's has struggled as consumers have cut spending. In its fiscal second quarter ended Aug. 2, profit fell 12%, and Kohl's has forecast a decline in second-half sales at stores open at least a year.
In addition to its planned store openings next year, Mr. Mansell says, Kohl's will concentrate on renovating 60 existing locations -- almost double the number it is refurbishing this year and the most ever.
And despite tightening credit, Kohl's is well positioned to continue its expansion, Mr. Mansell says. "Our strong balance sheet and financial position continue to give us tremendous flexibility to make the right long-term decision and avoid being short-term focused." For example, he says, Kohl's, which owns 35% of its stores and leases the rest, looks for "the best location first, not the cheapest," when deciding where to open new locations.
By: Cheryl Lu-Lien Tan
Wall Street Journal; October 1, 2008
