Despite a bold approach, Kohl struggles to escape the woes of department stores

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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 results surprised investors who have subscribed to Kohl's approach in recent years. Kohl (KSS) The stock fell 12% on Tuesday, reversing his gains for the year.

"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.

The stores live in fear of Amazon. Kohl's CEO adopted it
Kohl's is associated with Amazon (AMZN) to offer free returns to customers of certain stores. He has reduced the size of some stores and rented additional space to companies such as Aldi. And he expanded his Nike (NKE) and Under protection (UA) merchandise sections and partnered with brands like PopSugar and the best designers for clothing lines.

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.

Kohl conquered the moms. Now we start after the Millennials
Discounted retailers have pressed Kohl's, as well as other department stores such as JCPenney (JCP), Macy & # 39; s (M) and Nordstrom (JWN). JCPenney said Tuesday that sales in stores open at least a year had dropped 5.5% in the first quarter compared to last year, while total Nordstrom sales had dropped 3.5% in the first quarter. last quarter compared to last year. Macy's sales increased 0.7% in the last quarter, but sales in its backstage discount stores were the main causes.
Walmart (WMT) and Target (TGT) recently said that they were gaining market share in their home and clothing divisions. Target, for example, has launched new home décor brands, which has enabled its home business to achieve the fastest sales growth in more than a decade.
Meanwhile, discount chains such as TJMaxx, Burlington (BURL) and Ross Stores (ROST) continue to grow rapidly. TJX (TJX) On Tuesday, sales of TJMaxx and Marshall stores increased 6% in the last quarter compared to last year.

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.

The economy is hot. Should not it slow down T.J. Maxx and Burlington?

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.

Kohl reduces stores and rents extra space at Planet Fitness

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.

Starting in July, Kohl's will accept Amazon order returns free of charge, even without their parcels, in all its stores. Customers can deposit their returns to customer service offices and Kohl's will pack and return items to Amazon via its own logistics network.

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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