Shares of Kohl’s Corporation (KSS - Free Report) moved up 4.7%, following the news of a partnership with e-Commerce giant Amazon.com, Inc. (AMZN - Free Report) . Per the deal, both the companies will provide a new Amazon smart home experience for customers in 10 selected stores in Los Angeles and Chicago. The “store-in-store” concept will initiate in October. Customers will now be able to purchase Amazon devices, accessories and smart home devices like the Amazon Echo smart speaker and the Fire tablet directly from Amazon smart home spaces in Kohl’s stores.
Like Kohl’s, retailers such as Best Buy Co. Inc. (BBY - Free Report) and Sears Holdings Corporation have also teamed up with the online giant. Best Buy is creating in-store Amazon concepts, while Sears plans to sell Kenmore appliances on Amazon.com. Apart from Amazon, the company has also teamed up with Apple Inc. last year to develop small shops within its stores.
Benefits of This Partnership
We note that Kohl’s has been grappling with numerous headwinds since the past many quarters due to difficult sales environment and cautious consumer spending. Evolving spending patterns of consumers are also hurting sales. Demand for clothes and accessories like watches and handbags have declined as consumers prefer to spend more on home renovations and cars. This has affected the store traffic significantly. In fact, in 2016, the company closed 19 underperforming stores due to tough retail conditions and heightened competition from discount retailers as well as other brick-and-mortar stores.
Kohl’s comps have also been declining over the last six quarters due to industry wide headwinds. The company began its turnaround initiative named “Greatness Agenda” in the first quarter of 2014 to increase transactions per store and sales. However, it did not bear fruits. Nevertheless, it has helped the company to deliver positive comps in all the four quarters of fiscal 2015. However, the quarterly growth rates moderated gradually which remained a concern. Moreover, comps have declined consecutively in the last six quarters, including the recently reported the second quarter of fiscal 2017. This is raising concerns over the near term.
The partnership therefore seems to be beneficial for both companies. Kohl’s believes its stores traffic will increase, thanks to the availability of Amazon’s varied electronics options. Amazon, on the other hand, will save huge set-up costs and will get more visibility through Kohl’s stores.
Other Initiatives to Revive Sales
The company has been undertaking a number of initiatives to attract more shoppers to stores and improve sales. Lately, the company has started offering more outside famous brands and cutting down on the number of in-house clothing brands. The addition of Under Armour workout tights, sneakers and other gear in March was a great success and was very well-accepted among customers.
The company is also focusing on sales growth with both Nike and Adidas. Kohl's plans to start selling Clarks shoes for the back-to-school shopping season and is looking for other brands to add to store aisles. The company has gained significant market share in active apparel and footwear in the first half of the year and expects the trend to continue in the back half, based on assortment improvements.
During the second quarter of fiscal 2017, the company witnessed improvement in sales trend compared to the prior quarter, driven by the impact of the speed initiative in the supply chain and continued focus on three largest private-label brands such as SONOMA, Croft & Barrow and Apartment 9. Two of its largest exclusive brands, Simply Vera Vera Wang and Lauren Conrad, posted double-digit sales increases in the quarter. The company plans to continue selling the best-selling of its private-label brands, such as Sonoma, Croft & Barrow and Apt. 9, in order to drive traffic.
We believe these efforts are well reflected in the share prices of the Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Notably, in the last three months, the stock has moved up nearly 20% in comparison to the industry and the broader Retail and Wholesale sector. While the industry improved 8.7% in the last three months, the sector declined 0.1% in the said time frame.
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