Kohl’s announces plans to open 100 small-format stores, grow Sephora business to $2 billion

Kohl's Corp. headquarters in Menomonee Falls
Kohl's Corp. headquarters in Menomonee Falls.

Last updated on March 8th, 2022 at 02:24 pm

Kohl’s Corp. on Monday updated investors on its long-term turnaround strategy and introduced several growth initiatives, including plans to open 100 new store locations in the next four years.

The new stores will have a smaller footprint compared to Kohl’s existing 35,000-square-foot department stores. They will be located in small-sized markets, and merchandise will reflect buying habits of local consumers. Kohl’s is testing the concept in Seattle, where the store’s mix leans heavily toward outdoor apparel.

“The smaller-format store gives us greater real estate flexibility and the opportunity to go into markets and neighborhoods that couldn’t support a full size Kohl’s,” said Michelle Gass, during Koh’s virtual investor day presentation.

The Menomonee Falls-based retailer also announced a goal of growing its partnership with Sephora to a $2 billion line of business. Since fall, Sephora’s shop-in-shops have opened at 200 Kohl’s locations, with 400 more opening this year, for a total of 850 stores by 2023.

Kohl’s hosted its virtual investor day in the midst of a proxy war with activist investor Macellum Capital Management, which owns a 5% stake in the company. The firm is blaming Kohl’s current board of directors for its depreciating stock price and stagnant sales compared to industry peers. After Kohl’s rejected two purchase offers for $64 per share and $65 per share earlier this year, Macellum nominated a slate of 10 director candidates for election at the retailer’s upcoming 2022 annual meeting this spring.

Kohl’s leadership has continued to defend its current long-term strategy since it was announced in October 2020. It aims to grow sales and operating margin by capitalizing on apparel trends, improving its women’s business, and developing a reputation as “the most trusted retailer of choice for the active and casual lifestyle.” The strategy was the subject of a BizTimes Milwaukee cover story last year.

Kohl’s says it has worked to restructure its business in the name of profitability, and to show for it, the company closed the books on fiscal 2021 with an 8.6% full-year operating margin, surpassing its goal of 7% to 8% operating margin by 2023. The company also reported a record-setting $7.33 adjusted diluted earnings per share in 2021, up from a $1.21 loss per share in 2020 and previous high of $5.60 in 2018.

Addressing investors Monday morning, Gass said last year’s results laid the foundation for “a complete reinvention of our business model and brand.”

Looking ahead, Kohl’s plans to grow the top line in at least the low-single digits percent range while maintaining a 7% to 8% operating margin, in an effort to grow earnings per share in the mid-to-high single digits percent range.

Another key focus of Kohl’s investor day presentation was the evolution of its omnichannel business model, which relies on both its 1,100-store footprint and its e-commerce platform to build and maintain its customer base. This year, Kohl’s will roll out self-serve “buy online, pick up in store” service at all of its stores while it continues to test self-serve returns and check-out. Building on its partnership with Sephora, which has so far produced a mid-single digit in-store sales lift, customers will soon have the option to avoid shipping fees by picking up their online Sephora orders at Kohl’s stores.

The company also discussed its plans to use data science to make the in-store experience more personalized and localized over the next two years.

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Maredithe has covered retail, restaurants, entertainment and tourism since 2018. Her duties as associate editor include copy editing, page proofing and managing work flow. Meyer earned a degree in journalism from Marquette University and still enjoys attending men’s basketball games to cheer on the Golden Eagles. Also in her free time, Meyer coaches high school field hockey and loves trying out new restaurants in Milwaukee.

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