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Sales in Kohl stores opened at least a year fell 3.4% in the first quarter of 2019 – the first decline of the company for nearly two years – said Tuesday the group. Kohl's also reduced its forecasts and expects this year's sales to reach equilibrium or decrease.
"The year has started more slowly than we would like," Executive Director Michelle Gass told analysts. She admitted to being disappointed by the performance.
Kohl's results have led some analysts to question whether the slowdown in the last quarter was a temporary shock or a sign of permanent damage.
"There is no doubt that this is, at the very least, a serious departure for Kohl's recovery," said Neil Saunders, CEO of GlobalData Retail, in a note to customers.
Broken sales streak
Gass, the CEO, has taken a proactive approach to redevelop more than 1,150 Kohl stores for the era of online shopping.
These changes seemed to work. As Tuesday approaches, Kohl's has posted six consecutive quarters of sales growth in stores open at least a year ago.
The leaders of Gass and Kohl tried to assure the analysts that the weak quarter was only a "retarder". She stated that there was no "basic systemic challenge" in Kohl's apparel sector, which accounts for nearly half of its annual sales.
Nevertheless, Kohl's CFO, Bruce Besanko, acknowledged that attracting customers to the stores was a "challenge" last quarter and that Kohl's "has a lot of work" ahead of him.
Strong competition
Gass attributed the unexpected drop in cold sales and the difficulties of Kohl's real estate division. But she also noted that this competition is increasing, especially in the home decor.
"It's a very competitive market, and we've seen more aggressive pricing and promotions in categories such as the country of origin," she said.
The TJMaxx and Marshalls "clothing and home" categories were very strong, "said Ernie Herrman, TJX's CEO, in a statement Hermann said the influx of store traffic had led to higher sales, which has demonstrated the "resilience of our non-price retail model", even in a healthy economy.
Analysts believe that TJX is about to continue to grow, which will challenge Kohl and others.
"We expect TJX's non-price model will continue to gain market share," AllianceBernstein analyst Jamie Merriman said in a note to customers on Tuesday.
Bet on Amazon
According to Mr. Gass, Kohl plans to increase sales by lowering the prices of some goods.
"There were times in the quarter when we were just not as competitive" in price, she told analysts. "Looking back, we should have been a little more pointed."
The department store also hopes to win customers by introducing brands such as the Nine West shoe line; an exclusive home-based product line featuring the stars of the TV series Property Brothers, Drew and Jonathan Scott; and a line announced Tuesday for the winter holidays with fashion designer Jason Wu.
But the company's "biggest initiative" to drive traffic to stores this year will be the national expansion of its returns program with Amazon, Gass said.
The partnership with Amazon will help Kohl attract new customers, including coveted Millennium buyers. However, relations with Amazon will benefit Kohl only if these Amazon customers make their purchases in the stores after their return.
"We have to take this traffic and convert it into sales," said CFO Besanko.
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