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Kohl’s, the major US department store chain, has recently found itself in a difficult financial position. Declining sales and profits have forced the company to announce the upcoming closure of numerous physical store locations nationwide. While an iconic presence in American retail for decades, Kohl’s struggles to keep pace with changing shopping habits and increased competition from online retailers.
The rise of e-commerce and shifts in consumer preferences have hit traditional brick-and-mortar chains hard. Kohl’s aims to respond to the new retail landscape by closing underperforming stores, focusing on omnichannel integration, and exploring alternative strategies. However, the outlook remains uncertain for this staple of suburban shopping malls.
Kohl’s Financial Struggles
In recent years, Kohl’s has experienced declines in key financial metrics. The company’s sales growth has stalled, with revenues down by over 10% between 2020 and 2022. Profits have also dropped steeply over the same period. Kohl’s net income fell nearly 50% year-over-year in Q1 2022 alone. The stock price has declined accordingly, losing over 60% of its value since early 2021.
As of 2023, it is still facing declines in its inventories.
These worsening financials reflect pressure from both long-term and current external factors. Over the past decade, the rise of e-commerce has reduced foot traffic at physical stores. Competition from Amazon and other digital players has taken a toll across the retail sector.
More recently, high inflation has squeezed consumer spending power while inventory gluts have forced heavy discounting. These revenue and margin hits have severely damaged Kohl’s bottom line. The company has been unable to return to pre-pandemic profit levels.
Kohl’s Store Closings
In response to its financial struggles, Kohl’s announced that in August 2022, it plans to close around 100 of its roughly 1,100 stores. This represents an almost 10% reduction in the company’s nationwide physical footprint. The selected locations slated for closure tend to be smaller format stores with leases expiring soon.
But then they announced on Investor Day: “Expect to open 100 new Kohl’s stores in the next four years.“
Most are found within or near shopping malls. Geographic concentration is noticeable, with closures clustered in certain states like California, Texas, Florida, and Wisconsin.
Kohl’s cites poor financial performance as the driver behind its decision to shutter these stores. Sales totals for the identified sites were well below average, with some producing as little as half the revenue of top-tier locations. The stores marked for closure also tended to have lower credit portfolio balances.
Overall profitability lagged at these low-traffic and low-sales locations. Hence, Kohl’s decided to allocate resources away from its poorest brick-and-mortar performers.
Impact on Employees
The store closures will eventually displace around 5,000 Kohl’s employees who work at the affected locations. However, Kohl’s has announced plans to offer severance packages and transition support to impacted staff members. Eligible workers will receive continued pay and benefits for various periods.
Store managers can get up to 16 weeks of salary, while other employees qualify for four to eight weeks. Additional provisions include career development coaching.
These measures aim to ease the hardship of job loss for Kohl’s associates. The company hopes to retain talent within its smaller post-closure footprint. Some displaced workers may find new roles at nearby stores. However, the overall headcount reduction remains substantial. It reflects the labor impact of Kohl’s move away from physical retail into a more digitally-focused future.
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Impact on Customers
The store closures will also affect Kohl’s vast customer base, especially loyal shoppers who prefer in-person shopping. The imminent shutdown of around 100 locations will reduce convenient access for some patrons. Regular customers of stores slated to close may be disappointed by losing their preferred neighborhood Kohl’s outlet.
However, the broader shift from physical to digital retail means patronage patterns were already evolving. Many customers, particularly younger demographics, have steadily replaced in-store trips with online ordering. Curbside pickup and buy-online-pick-up-in-store (BOPIS) programs also help mitigate the effects of store closures.
Kohl’s aims to direct customers smoothly to these alternative fulfillment options. Still, the closures fundamentally change how shoppers interact with the Kohl’s brand.
Kohl’s Strategic Changes
Facing its myriad challenges, Kohl’s has begun pursuing major strategic shifts beyond just closing stores. In late 2021, the company announced a national partnership with beauty retailer Sephora. Around 850 Kohl’s stores now feature dedicated Sephora shop-in-shops, carrying premium cosmetics brands. This brings new customer segments into Kohl’s locations. It also leverages Sephora’s expertise in immersive digital integration.
Additionally, Kohl’s is piloting small-format outlets just one-tenth the size of a typical store. These neighborhood stores stock a curated mix of merchandise selected for convenience. Their agility and smaller footprint provide flexibility advantages versus sprawling department stores; between rightsizing locations and Sephora, Kohl’s hopes to reinvigorate in-person shopping.
Focus on Omnichannel Retail
A key pillar of Kohl’s strategic response involves embracing omnichannel retail capabilities. Kohl’s aims to integrate its physical and digital operations more seamlessly to align with shifting consumer behaviors. The company is modernizing its e-commerce platforms and delivery options for a unified brand experience.
Kohl’s technology investments support faster digital order fulfillment from its stores. Stores will take on more fulfillment center-like roles. BOPIS, curbside pickup, and enhanced shipping speed will make omni-commerce frictionless. Kohl’s is also enriching mobile features and in-store digital shopping tools.
By blending physical and digital channels, Kohl’s can leverage its brand recognition while fulfilling purchases however customers prefer.
Potential for Bankruptcy or Acquisition
Despite Kohl’s strategic maneuvers, doubts linger about its long-term trajectory. Financial analysts have speculated that bankruptcy could become an option if sales and profitability do not recover. However, Chapter 11 reorganization seems unlikely shortly, given Kohl’s current financial cushion. The company may first consider additional cost-cutting or inventory reduction to stabilize its position.
If further deterioration occurs, an outright acquisition of Kohl’s becomes another possibility. The company could represent a bargain opportunity for a buyer seeking quick expansion into its real estate holdings and consumer market segments.
Names floated as prospective acquirers include large private equity firms or major retailers like Walmart or Macy’s. For now, Kohl’s appears focused on turning itself around independently rather than pursuing a buyout or bankruptcy. But its poor recent trajectory means all options may be on the table.
Kohl’s Response to Challenges
Kohl’s executives have acknowledged the severity of the company’s current situation. However, they express confidence that Kohl’s can adapt its proven retail concept to succeed in the evolving landscape.
In a statement, Kohl’s CEO Michelle Gass highlighted the company’s longstanding heritage and loyal customer base as strengths that will enable its revival. She and other leaders have emphasized Kohl’s strong nationwide store footprint and trusted brand identity as differentiating assets if properly leveraged.
They aim to play to Kohl’s unique omnichannel advantages by connecting physical locations with digital innovation.
To rejuvenate growth, Kohl’s also elevates its merchandising with new high-margin private-label apparel. They are introducing the athleticwear brand FLX, which seeks to tap into casualization and workout trends. Management aims to restructure inventory towards hot categories. They believe strengthening Kohl’s product portfolio will entice customers old and new.
The Future of Kohl’s
Despite its troubling financial trajectory, Kohl’s remains a staple of American retail with inherent brand equity. However, whether it can successfully reinvent itself for an omnichannel future remains uncertain.
If Kohl’s imaginatively blends its store footprint with enhanced digital tools, it may solidify its niche as an easy, accessible hybrid shopping destination. The right mix of rightsizing, inventory adjustments, and channel integration could stabilize Kohl’s position.
However, missteps in strategy or execution could further erode relevance with consumers. Analysts are skeptical about Kohl’s ability to recapture growth, especially if the economy worsens.
Ultimately, Kohl’s faces a challenging trek back to prosperity and relevance. Shedding underperforming stores provides an initial boost. But much depends on how nimbly Kohl’s can evolve. To survive in the years ahead, exceptional omnichannel agility and customer insights will be required. Whether this retail institution can reinvent itself thoroughly enough to thrive in the 21st century remains to be seen.
Conclusion
Kohl’s is at a crossroads as a longtime staple of American retail. Its decision to close around 100 physical store locations reflects the company’s struggles to adapt to an increasingly digital shopping landscape. While store closures provide a needed course correction, Kohl’s will require deeper strategic evolution to revive its trajectory.
Blending strengths like brand awareness and store access with sophisticated omnichannel capabilities may open new avenues for Kohl’s. However, skillfully navigating this transition represents a major challenge. The coming months and years will determine whether Kohl’s can successfully transform its business model to align with changing consumer behaviors and compete effectively in an oversaturated retail market.
Its ability to capitalize on its differentiating assets while innovating for the future will be crucial to becoming a retailer built for the 21st century.
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Frequently Asked Questions
Q: How many Kohl’s store locations are closing?
A: Kohl’s announced plans in 2022 to close approximately 100 of its over 1,100 store locations nationwide. The affected stores represent around 9% of the company’s physical retail footprint.
Q: Where are the Kohl’s stores closing located?
A: The Kohl’s stores slated for closure are concentrated in certain states, including California, Texas, Wisconsin, Ohio, New Jersey, and Florida. Many are located in or near shopping malls.
Q: Why is Kohl’s closing these store locations?
A: Kohl’s cited consistent underperformance and low financial results as the key reasons for closing the specific stores. Sales and profits at these locations lagged well below company averages and standards.
Q: How will the closures impact Kohl’s employees?
A: Kohl’s expects around 5,000 employees to be displaced by the closure of ~100 stores. The company plans to offer severance packages and career transition help. Some staff may transfer to nearby stores.
Q: What does the future look like for Kohl’s as a company?
A: Kohl’s future remains uncertain; while closures help cut costs, deeper reinvention is likely needed to stabilize Kohl’s position. Investments in omnichannel retail could help Kohl’s leverage its brand and real estate. But execution risks remain high.
