We haven’t seen a retail dogfight like this one in a long, long time…maybe never.
Last time I checked there were perhaps three or four serious suitors trying to take over Kohl’s – and as many as 20 companies kicking the tires and snooping around.
Their ideas about what to do with the company if they get their way are all over the spectrum: sell it, go private, break it up, sell the real estate, kick out the current management and board, go larger, go smaller and generally financially engineer the hell out of the retailer to make more money for those potential new owners.
Hey, listen, making money is a good thing. I’m a huge fan of the concept. But when you listen to their plans or read between the lines on what their intentions might be, you discover a very curious fact: it doesn’t seem like any of them have even the faintest idea how to make Kohl’s a better retailer…and ultimately a better business.
Kohl’s is not a bad retailer. Under CEO Michelle Gass they are doing many good things. The deal to accept Amazon returns, which I suspect may not be quite the traffic builder they say, is still a nice tie-in. Stealing Sephora from JCPenney was a very impressive move, because that in fact is a brand that will bring in the buying bodies. Kohl’s has also snared a couple of real name brands, like Under Armour and Draper James, in its efforts to reach new Millennial-aged shoppers.
Other initiatives, like subletting some of its floor space to third-party retailers like Aldi and Planet Fitness, are less impactful, seemingly more about making headlines than money. And Kohl’s recent announcement that it would open 100 small-scale stores is really an unknown since it currently only has one such location in operation.
No, Kohl’s is far from a basket case. There are plenty of other retailers in far worse shape. But the fact remains that its revenues have been flat for years and the vultures are circling their wagons ever tighter and tighter around Menomonee Falls. But here’s the thing: it seems that all the ideas being floated by these takeover guys are all about delivering more profits for owners and investors. That’s a great short-term solution that, yes, will make whoever gets Kohl’s a bunch of money. But once those checks are cashed then what? They still haven’t fixed whatever is wrong with the company.
And what exactly is wrong? It’s not such an easy answer. Kohl’s sells into the middle market and that is a distinct liability these days. It’s also one that can’t be easily fixed. Go lower and you bump into Walmart and Target. Trade up and you go up against Macy’s, not to mention the thousands of apparel specialty chains. Kohl’s, for better or worse, is stuck in the middle.
It’s not a real estate issue either. Its stores are the right size, not giant behemoths like legacy department stores. They are generally located in the right locations, off the mall and easily accessible for quick shopping trips. (One of the most underrated aspects of Kohl’s success was the fact that most stores had two entrances off the parking lot, making it easier to get in and out faster.)
Maybe there are some merchandising fixes though they are not readily apparent. Back in its prime Kohl’s sweet spot was the young family, with clothing and footwear for kids and their parents. Maybe they can work on that. Maybe they can beef up their e-commerce, though from the outside it’s not bad and not really behind the competition.
I think there are opportunities in the home area, which is underdeveloped, particularly in hard goods like housewares and décor accessories. But apparel, which is by far the largest category in the merchandise mix, is the driving factor and that’s what needs to be examined to see where the holes are. Gass is talking about evolving the store into “a more focused lifestyle concept centered around the active and casual lifestyle.” OK, that’s a good customer to go after, but it will need more than the Lululemon crowd to make 1,100 stores work. I’m still thinking there are lot more families out there than people running 5Ks.
But I don’t know about you, I’m not hearing any of these people who want to get their hands on Kohl’s talking about any of this. We’ve seen this act before, where guys come in and focus on the finances rather than the business itself. It’s an ugly story with too much retail strategy tragedy to count. Short-term is by definition not a long-term plan.
Kohl’s is fighting off all of these guys as best as they can but it just looks like there’s too many out there for something not to happen. Shareholders need to lay out all the plans on the table and see which ones makes the most sense for the long-term success of the company and we’ll see who wins.
Current management may not have all the answers but at least they know what the questions are.
WarrensReport 