Kohl’s Corp. board of directors set out to name its next chief executive last year with clear objectives.
“We’re not looking for a CEO who’s coming in to change the strategy that we’ve embarked on,” said board chair Peter Boneparth during the company’s third quarter earnings call in November. “What we are looking for is a very strong operator, somebody who can drive sales, somebody who can drive earnings per share, and somebody who understands the basic tenets behind the Kohl’s value proposition and the brand strategy.”
That somebody turned out to be retail industry veteran Tom Kingsbury, who was already in place as interim CEO and had been appointed to Kohl’s board in 2021, on account of a settlement deal with activist investors who had sought to shake up the boardroom earlier that year. Kingsbury was one of three new directors who joined the board as part of the agreement, and having reached retirement age, that’s perhaps where he assumed he’d spend the final years of his decades-long career.
But now, at 70 years old, Kingsbury has his work cut out for him. Kohl’s had a net loss of $19 million and sales decrease of 7.1% in fiscal 2022 as the Menomonee Falls-based retailer struggled in an inflationary market.
So, how will he do it? Don’t expect a new grandeur turnaround plan. After all, that was never what the board wanted.
“Our efforts to drive the business are already underway,” Kingsbury said during his first earnings call in March. “… It’s not an overhaul. You know, there are some things that we need to be doing, and we’re already started working on it, but it’s not a total overhaul. I just want to make sure that people understand it. I think there’s a lot of good things in place already today.”
Championed by Kingsbury’s predecessor Michelle Gass – whose out-of-the box approach led to several big moves including the launch of Amazon Returns and a partnership with Sephora – Kohl’s current turnaround plan, in short, aims to bolster sales and operating margin by capitalizing on active-casual apparel trends, improving its women’s business, and driving store traffic through Sephora shop-in-shops and store pick-up services for online orders.
Kingsbury will continue steering Kohl’s in that general direction while – in the face of today’s macroeconomic headwinds – focusing on four key priorities this year: enhance the customer experience, accelerate and simplify value strategies, manage inventory and expenses, and strengthen the balance sheet.
Cut out for the job
To better understand how Kohl’s newest leader is equipped to get the retailer back on track, it’s worth taking a look at his track record.
After earning his business degree from the University of Wisconsin-Madison, Kingsbury began his career at a high point for brick-and-mortar retail, with the rise of indoor malls and big box stores. Kingsbury joined The May Department Stores Co. in 1976 as a merchant, and by 2000 he had worked his way up to president and CEO of Filene’s, the company’s largest division at the time.
Then came his first stint at Kohl’s, where he oversaw store operations, information technology, e-commerce and business development as senior executive vice president from 2006 to 2008. From there, he went on to lead New Jersey-based Burlington Stores Inc., then known as Burlington Coat Factory, for the next decade.
During Kingsbury’s tenure as president and CEO, Burlington cemented its niche as a “pure off-price retailer,” setting in motion a new growth strategy that was aimed at improving inventory turnover, opening new small-format stores, increasing its merchandising mix and growing underdeveloped categories such as home and women’s apparel, according to the company’s website.
In 2013, Burlington went public for a second time – with an IPO of $17 per share – after eight years of private ownership by Bain Capital. By the end of that year, the company operated 521 stores and generated $4.4 billion in annual sales, up from 368 stores and $3.4 billion in annual sales in 2006.
Amidst growth and changes to the business model and brand name, store activity remained central to Burlington’s success as an off-price retailer. The company in the late ‘90s had been first in its category to adopt an online presence, but purchases through its website barely made up 1% of total sales, so in 2020 the company announced it would shut down its e-commerce platform and use its website solely as a promotional tool.
When Kingsbury retired in 2019, Burlington had 727 stores and $7.3 billion in sales.
“He certainly has the kind of background you’d want to see as a CEO of Kohl’s, having built that business, which was little-known when he went in as CEO,” said David Swartz, senior equity analyst at Morningstar Research Services. “By the time he left, it was seen as really the third major discount, clearance-type department store. Burlington is still a distant third really from TJX (parent company of T.J. Maxx) and Ross Stores … but it’s a lot more competitive than it was.”
Specifically, it’s Kingsbury’s background in managing stores and supply chain that will serve him well now that he is at the helm of Kohl’s.
Following demand volatility from the highs of 2021 into the lows of 2022, Kohl’s has spent the past few quarters digging itself out from under a mountain of excess inventory. Markdowns after the holidays helped clear inventory and boost sales but the high cost of product and freight gave way to a gross margin of 23% for the fourth quarter, down from 33% year-over-year. Swartz pointed out that Kohl’s recently started advertising another big clearance sale of up to 70% off.
“That’s not great because you usually want to be done with your clearance sales by January,” said Swartz. “What Kingsbury will have to do is manage his supply chain better, so they don’t get stuck with too much stuff. It’s very difficult because you don’t want to have empty shelves either. … You have to find a level where you’ve got a manageable amount of inventory, but you have stuff that people want.”
Swartz said discount stores like Burlington and T.J. Maxx base their business model on high inventory turn so that they can take in mass amounts of clearance items from department stores like Kohl’s and Macy’s. Kohl’s business model, on the other hand, is designed to sell products from brands like Levi’s, Nike and Eddie Bauer at full price.
No quick fix
Asked during the Q4 earnings call to compare his past experience to what’s ahead of him now, Kingsbury was quick to acknowledge that Burlington and Kohl’s are two different companies, while also offering some perspective.
“Even in my previous experience, you know … it took us a while to get things going in the right direction,” he said. “It’s just something you can’t do overnight.”
Beyond his career acumen, Kingsbury brings to the role another advantage for Kohl’s: the favor of the New York hedge fund and activist investor Macellum Advisors GP LLC. After years of pushing for improved performance and new leadership – culminating in a near-board takeover in 2022 – the firm has entered into a multi-year standstill agreement with Kohl’s, which means the retailer won’t be entangled in any more proxy fights for the foreseeable future.
“At one point, I expected that there would be another proxy fight this year given that the stock price has not recovered, and Kohl’s is coming off a very poor year,” said Swartz. “… So, the fact that (Macellum) is not fighting the proxy fight and they’ve decided they like the way the company is going is certainly important and could have been a major reason why (Kingsbury) was appointed the CEO.”