Kohl’s Benefits from Strategic Alliances, Yet Faces Cost Challenges


Kohl’s Corporation (NYSE:KSS) is strategically forging partnerships to propel its growth trajectory. The specialty department store retailer is capitalizing on its strong omni-channel capabilities, while its focus on enhancing the customer experience is yielding positive results. However, Kohl’s is not immune to the challenges posed by an inflationary economic landscape. Let’s explore these aspects in more detail.

Strength in Collaborations

 Kohl’s has established a solid partnership with Sephora, ushering in a new era of elevated Beauty at Kohl’s. This collaboration has been particularly fruitful, with Sephora Kohl’s exceeding expectations, contributing to an impressive 90% surge in total beauty sales, as highlighted in the recent earnings call. During the second quarter of fiscal 2023, nearly 200 Sephora shops were opened, and this number is expected to rise to over 900 stores by the close of 2023. Additionally, the company plans to expand the footprint of small format Sephora shops over the next few years.

Omni-Channel Capabilities Driving Growth

 Kohl’s is not only committed to growing its physical store presence but also accelerating the expansion of its digital business. The company is set to open seven new stores, including one relocation, in 2023. In response to evolving customer needs, Kohl’s has been proactive in enhancing its digital marketing efforts and improving its website.

Efforts to boost mobile traffic have led to increased adoption of the Kohl app, which has become a crucial driver of online sales. The company is also investing in expanding its e-commerce fulfillment centers and bolstering in-store pickup options to enhance its online offerings.

Progress on Growth Initiatives 

Kohl’s is making steady progress toward its key priorities for 2023, which include enhancing the customer experience, streamlining its value strategies, managing inventory and expenses efficiently, and reinforcing its balance sheet. The management is actively driving growth in various segments, including gifting, Sephora, impulse purchases, home decor, and the development of new stores to elevate the overall customer experience. Kohl’s sees ample opportunities to boost its core offerings in apparel and footwear.

KSS remains committed to promoting growth through its loyalty programs, which include Kohl’s Cash, Kohl’s Rewards, and private-label credit cards. In the second quarter of fiscal 2023, the company launched a co-branded credit card with Capital One, catering to select customers. Furthermore, Kohl’s is dedicated to cost management efforts, with a focus on reducing the marketing spend ratio and incorporating advanced technology into its operations to enhance productivity.

Cost Challenges 

In the fiscal second quarter, Kohl’s faced some cost headwinds, with its gross margin contracting by 61 basis points (bps) year over year to 39%. This decline was primarily attributed to rising product costs and increased shrinkage. SG&A expenses also rose by 1.6% to $1,304 million, driven by wage pressures, higher store expenses related to Sephora openings, and investments in store experience. For the upcoming fiscal third quarter, management anticipates a nearly 3% year-over-year increase in SG&A expenses, largely due to additional store-related investments and the opening of 45 Sephora small shops. Nevertheless, the company’s growth initiatives are expected to provide some relief.

KSS’s stock performance has seen a 6% decline over the past six months, trailing behind the industry’s 17.4% decline.

Featured Image: Unsplash @ Mike Petrucci

Please See Disclaimer