The changing retail landscape has had a bitter impact on most retailers. Evolving spending patterns of consumers and inclination toward online shopping have dented traffic and in turn brick-and-mortar sales. This digital transformation in shopping forced most retailers including big-box ones to trim their store count and focus more on their e-commerce model. One such retailer hit hard by the tough retail environment is Kohl’s Corporation (KSS - Free Report) .
Headwinds Plaguing the Company
Kohl’s has been grappling with numerous challenges since the past many quarters due to difficult sales environment and cautious consumer spending. The company witnessed a decline in demand for clothes and accessories like watches and handbags as consumers prefer to loosen the purse strings 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 like Amazon.com Inc. (AMZN - Free Report) as well as other physical shops such as Macy’s Inc. (M - Free Report) and Target Corporation (TGT - Free Report) . Kohl’s comps have also been decreasing over the last six quarters due to industry wide concerns.
In such a bleak scenario, Kohl’s has come up with innovative ways to market its products well and has undertaken initiatives to drive the sales and market share.
Measures Adopted to Boost Traffic and Drive Sales
Kohl’s has been trying hard to attract more shoppers and improve sales. Recently, the company has partnered with e-commerce giant Amazon to provide a new Amazon smart home experience to customers in 10 selected Kohl’s stores across Los Angeles and Chicago, beginning this October. Apart from Amazon, the company had teamed up with Apple Inc. last year to develop small shops within its stores. Kohl’s believes this store-within-store concept will increase buyers’ footfall and boost stores traffic.
The company has also started offering more famous external brands, curtailing the number of in-house clothing labels it sells. The addition of Under Armour workout tights, sneakers and other gear in March earlier was a great success and very well-accepted among the customers. The company is also focusing on sales growth with both Nike and Adidas. Kohl’s plans to start selling Clarks shoes to capture the back-to-school shopping season and is looking for other brands to add to store aisles. The company has gained significant a market share in active apparel and footwear segment in the first half of the year and expects the momentum to continue in the latter half, based on assortment improvements.
The company also intends to focus on three largest private-label brands such as SONOMA, Croft & Barrow and Apartment 9 in order to propel traffic, thanks to the sales improvement trend posted in the past, driven by an impact of speed initiative in the supply chain.
In order to drive comps, the company has also taken an initiative of Greatness Agenda during the first quarter of 2014 to increase transactions per store and sales. Though the plan is currently losing fizz, the company remains optimistic on its strategy to push sales over the long term. As part of this scheme, the company focuses on providing the right merchandise mix with tailoring products for every customer across channels. To execute this, the company expects to put more emphasis on five pillars namely, amazing product, easy experience, personalized connections, incredible savings and winning teams.
We believe these efforts are well-reflected in the share prices of this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
In the last three months, the stock has rallied nearly 25% in comparison to the industry and the broader Retail and Wholesale sector. While the industry has increased 9.2%, the sector has grown just 4.8%.
Kohl’s also boasts a VGM Score of A, which makes it a favorable investing option.
Inventory Reduction Initiatives
Kohl’s has also undertaken several steps to reduce inventory with a view to raise profits. Lower stock levels have led to improvement in merchandise margins, thus leading to gross margin growth. The company continues to expect supply to be down at low to mid-single digits for fiscal 2017.
Growing e-Commerce Business
The company is also striving to flourish its e-commerce business since the last few years. As a result, digital conversion improved at a double-digit rate in the recently reported second-fiscal 2017 on the back of better customer experiences on smartphone and smartphone app. In fact, technological advancement in terms of online applications, order placement on phone handsets and omnichannel efforts are expected to leave a substantial impact on customer experience.
In order to facilitate online sales via virtual platforms, Kohl’s has been opening on-line fulfillment centers and has also introduced Kohl’s Pay — a payment option allowing customers to pay for their in-store purchases with the Kohl’s credit card via their mobile phones. The company hopes to significantly grow its e-commerce business through these efforts in the near term.
Kohl’s also routinely introduces new brands to keep the inventory assortment fresh and the flow of customer traffic to company’s stores and website stable. Popular launches like Fit Bed under the company’s active and wellness business, the Jumping Beans collection featuring Disney characters, IZOD branded menswear and the Juicy Couture brand for women and girls, Gaiam Yoga product, Stride Rite branded kids’ footwear collection and many more further add stimulus to the company’s robust product-portfolio. Kohl’s has also partnered with designer Reed Krakoff to unveil an exclusive, limited-edition collection called REED, exclusively at Kohl’s retail outlets and on Kohls.com in April 2016.
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