Michelle Gass is finally escaping the quicksand of Menomonee Falls and getting a new job with Levi’s. Kohl’s has named a new interim CEO who has the Burlington Stores top job on his 70-year old resume and came to the retailer via activist investors who tried to depose Gass. And the embattled retailer will now have new leadership which will try to satisfy both its investors and its customers.
Be careful what you wish for.
Gass had been under attack literally for years by any number of agitating shareholders who believed she wasn’t doing a very good job and needed to go. They pushed not only for her exit but potentially for a break-up of Kohl’s or at least a sale to somebody else. Either way, it appeared their goal was to make some money out of their Kohl’s stake, not necessarily to fix whatever was wrong with the mid-market department store retailer.
Doing that will now be somebody else’s problem. Gass will join Levi Straus next month as president with the plan to make her CEO there within 18 months. That seems a rather long-range transition as these things go so don’t be surprised if the terms of that arrangement are changed sometime before 2024.
She leaves a Kohl’s that continues to underperform financially. In fact the company released preliminary results for its just-ended quarter that showed another same-store sales decline, this one at 6.9% and an overall net sales decline of 7.2%. Earnings were projected to be about half of what they were a year ago.
Since taking over the corner office four years ago, Gass – who came out of Starbucks and didn’t necessarily have a retail pedigree – has had a couple of notable gold stars on her list of accomplishments. Leading that would be landing Sephora as an in-store partner, stealing it away from JCPenney and providing Kohl’s with an important foundation (pun intended) in the beauty sector.
She also hooked up with Amazon to allow for returns at Kohl’s stores, seemingly as a way to get online shoppers into the stores, a move that is hard to evaluate given the sales declines. She experimented with new store formats, including a just-opened smaller location, as well as subletting space to several third parties like Planet Fitness and the Aldi grocery chain. None of these initiatives have been scaled up enough to have any kind of significant impact on the company’s performance.
All the while however its sales have continued to decline and other than a few feeding-frenzy-induced spikes its stock price has been in a slow but steady drop: In the fall of 2018, the year she took over, Kohl’s share price topped $80 but Tuesday it was trading at just under $30 a share, even with a 10% rise following the Gass announcement.
It’s clear that some investors believe that with Gass out of the way, Kohl’s will be back in play. Earlier this year it turned down an offer from another retail chain owner to buy the company for about double its current market value, claiming the price was undervalued. Activist investors were no doubt not happy.
One has to think that agitation will resume, but to what end it’s unknown. Whatever Gass’s accomplishments – and disappointments – the retailer remains stuck in the middle market of American retailing, a space increasingly squeezed by department stores like Macy’s and Dillard’s from above and discounters like Target and Walmart from below. Add in off-pricers, Amazon, Wayfair, a potentially reinvigorated (and refinanced) JCPenney and any number of other competitors on the retail landscape and it’s unclear where Kohl’s fits in the bigger picture. Its off-mall footprint, a reputation as the place young families shopped for their clothing and the Sephora bump are all pluses yet it may not be enough.
For the time being all of this falls on Tom Kingsbury’s desk. CEO of off-pricer Burlington Stores from 2008 to 2019, he was there for some of the off-pricers rough years but also for its more recent revitalization. Earlier in his career he ran the old Filene’s division when it was part of May Co. and had an previous stint at Kohl’s in the early 2000s as a senior vice president in charge of marketing, e-commerce and tech. According to his bio on the Kohl’s site he is also a director for no less than three other retailers –Tractor Supply, BJ’s and Big Lots – positions it would seem he would need to relinquish in his new role at Kohl’s.
What he does in that role – however long it lasts before a more permanent leader is picked – could determine the fate of Kohl’s. As an appointee from activist investor Ancora, joining the board last year, Kingsbury could restart talks to sell Kohl’s or even break it up into retail and real estate pieces. He could accelerate the small-store roll-out, bring in more third-party brands or even close some of Kohl’s 1,100 existing stores. Then again, he could just be a placeholder until the company’s board brings in his successor.
Whatever happens it will no doubt continue the turmoil and uncertainty that has surrounded Kohl’s for the past several years. At least the retailer will know someone at Levi’s to get a good deal of jeans.
WarrensReport 