Why Kohl’s Amazon Partnership and Plan to Capture Millennials Isn’t Working Yet

Despite a push to capture millennial shoppers and a high-profile partnership with Amazon, Kohl’s Corp.’s holiday sales fell short — calling attention to the retailer’s challenges as it executes a turnaround plan that has yet to yield the anticipated results.

On Thursday, the Menomonee Falls, Wis.-based company announced same-store sales for the months of November and December that dropped 0.2% from the previous year. In a statement, CEO Michelle Gass noted momentum in the retailer’s e-commerce as well as active, beauty and children’s departments, coupled with solid performances in its footwear and men’s categories. However, those positive sales were offset by a weakness in women’s, which she said the firm is “working with speed to address.”

The results highlighted an ongoing struggle in the division — particularly after its disappointing third-quarter performance. On Nov. 19, Kohl’s noted that all lines of its business were positive in Q3 except one: The women’s department — which “made progressive improvement relative to the first half of the year” — declined 1%, compared with strength in the men’s, footwear and accessories business. (Gass added that, while women’s “underperformed” in stores, it did experience growth in digital channels in tandem with other Kohl’s categories.)

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As the women’s active as well as intimates categories showed solid performances in the third quarter, Kohl’s has taken steps to address the slowdown in other categories: It has added Nine West and Elizabeth and James to its roster of brands and it exited the Dana Buchman label. It also recently introduced an exclusive limited-edition women’s apparel capsule designed by Jason Wu in an effort to capture a more trend-driven subset of shoppers.

“We took this opportunity to actually reflow the women’s pad in our store so that brand adjacencies would make sense,” Gass added in a conference call. “We know from history [that] any time you’re moving things around in the store, that’s going to create some short-term disruption, but we’re confident in the rebound.”

Since she stepped into the top role at Kohl’s in May 2018, Gass has made it a top priority to win over millennial and Gen Z consumers. The chief has put an emphasis on growing the firm’s digital sales, which increased at a mid-teens rate in the third quarter. Mobile served as the primary source of gains, with a particularly solid performance from the Kohl’s app, which nearly doubled and tripled in traffic and sales growth, respectively.

However, in its efforts to capture a demographic in its periphery, some analysts have pointed to the possibility that the company could be neglecting its core consumer base of middle-aged mothers in suburban areas or introducing a hodgepodge of merchandise in stores at a time when more shoppers are spending their dollars on digital buys.

“Department stores are growing online but not at brick and mortar,” observed Jane Hali, CEO of Jane Hali & Associates LLC. “Online is a clean and easy shopping experience. Customers entering Kohl’s stores are bombarded with too much merchandise and too many fixtures.”

HRC Advisory president Farla Efros added, “What Kohl’s sells is sold in many other places, so it comes down to service and experience to make women drive past all other spots to go there.”

In recent months, the chain has made more attempts to meet shifting consumer tastes, such as housing products from smaller, niche labels at 50 of its 1,200 stores through the Curated by Kohl’s program that rolled out in mid-October. (It teamed up with Instagram and Facebook to find those emerging brands.) Additionally, it has continued to expand its footprint of smaller-format stores, which are roughly 35,000 square feet and occupy 60% less space and inventory than a standard Kohl’s store.

“Consumers are not just aiming to pay less for clothing, they’re also buying less in the first place — largely driven by the younger generation,” HRC Advisory president Farla Efros told FN. “That — coupled with broader department store struggles, the growth in off-price channels as well as online [shopping] — can for certain be adding to the softness [at Kohl’s].”

What’s more, the company has also banked on its partnership with Amazon, which allows people who shop on Amazon.com to make returns to Kohl’s more than 1,150 brick-and-mortar locations with no additional fees. The program was expected to not only drive incremental traffic into stores, but also attract new shoppers who are considerably younger on average than the typical Kohl’s customer. However, after its first holiday season since launch left much to be desired, recent reports are questioning the partnership’s potential benefits for Kohl’s.

Nevertheless — with the Amazon program, in particular, still in its infancy — some analysts remain hopeful that Kohl’s will eventually leverage its partnerships and instill loyalty in consumers (provided it also makes those aforementioned brick-and-mortar changes).

“I think enhancing the in-store experience is key — such as keeping the stores clean and clutter-free, telling better brand stories in store [and] making checkout easier and quicker,” said Beth Goldstein, executive director and industry analyst at The NPD Group. “Otherwise people who are coming in to do returns are just going to walk right out.”

For the full year, taking into account its soft holiday performance, the department store chain now expects full-year diluted earnings per share to be at the low end of the previously announced range of $4.75 to $4.95. Over the past year, Kohl’s stock has declined roughly 29%. The firm is scheduled to post fourth-quarter earnings on March 3 and will host an investor day on March 16 in New York City.

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