Case #3 Dressing Up

Even in good times, the department store industry is one of the toughest industries to compete in. Like many of its competitors, Kohl's Corporation struggles to find a way to continue its successes even when faced with a drastically changed external environment. Based in Menomonee Falls, Wisconsin, Kohl's has more than 1,100 discount department stores in 49 states. The company has aggressively moved into the western and southern United States, although nearly a third of its stores are located in the Midwest. In 2011, the company had revenues of over $18 billion (up 7 percent over 2010) and profits of over $1 billion, an increase from the previous year of almost 12.5 percent. One analyst described Kohl's as "the best-positioned department store in this economy and one of the leading retailers with respect to inventory management, technological innovation, and merchandising and marketing execution." To continue its successes, it's important that Kohl's understands the changing needs of its customers.

Over the last few years, customers had become disillusioned with the overall shopping experience at many retail establishments. Long checkout lines, missing or vague product information, out-of-stock products, incorrect price tags, and scarce and often unknowledgeable sales staff have made the shopping experience quite unpleasant. Local shopping malls with their anchor department stores lost much of their popularity with shoppers. Unlike other department stores, Kohl's followed a different path.

Kohl's strategic approach has been built around convenience and price. A typical Kohl's store is a box-like structure with one floor of merchandise under inexpensive lighting where shoppers use carts or bags as they browse through the simple racks and shelves of clothing, shoes, and home apparel merchandise. The company is especially selective about its locations. Everything about the way Kohl's does business-who it sells to and how those customers shop-hinges on where it puts its stores. Its expansion goal is designed to achieve profitable growth. In 1992, at the time of its initial public offering, it had 79 stores in the Midwest. Now, it's in 49 states from coast-to-coast. In 2011, it had 300 stores in the Midwest, 110 stores in the Mid-Atlantic region, 147 stores in the Northeast, 143 stores in the South Central region, 183 stores in the Southeast region, and 244 stores in the West. In deciding where to place its store, Kohl's typically avoids malls when looking at store sites, believing that its target customers-young mothers-typically don't have the time for a long drive to a mall location and certainly don't want the parking hassles when they do go shopping. Its approach has been free-standing buildings with smaller parking lots in retailing power centers (a retailing destination where several large, specialty brand retailers often locate together) and other kinds of strip malls. For instance, the Kohl's store in Springfield, Missouri, is located adjacent to a Wal-Mart Super Center, a Home Depot, a McDonald's, a Michael's hobby and crafts store, and other casual dining restaurants.
Kohl's merchandising strategy is oriented around three consumer lifestyles: the classic (traditional, timeless look), the modern classic (modern, classic look), and contemporary (fashion-forward, contemporary look with the latest trends). The merchandise mix is 52 percent national brands (such as Levi's, Dockers, Reebok, Jockey, and Carter's) and 48 percent private and exclusive brands (such as Tony Hawk, Urban Pipeline, LC Lauren Conrad, Simply Vera Vera Wang, Dana Buchman, Candie's, and Croft & Barrow). In September 2011, Kohl's launched its Jennifer Lopez and Marc Anthony brands. Such brands are an attempt to keep pace with "cheap chic" rival Target and with J. C. Penney. As one retail expert put it, "The chains have decided to design apparel on their own, ensuring that their lower-income customers can buy skinny jeans and satchel bags at the same time as shoppers at higher-end stores." Kohl's also has a significant home accessories and home furnishings selection. For instance, there's a home furnishings collection called Casa Cristina (named for Cristina Saralegui, the host of a Spanish-language television show on Univision). It even has its own Food Network brand of dinnerware and cooking tools.

Although Kohl's has done well in a difficult industry, it is facing some serious challenges. Competitors ranging from J. C. Penney and Sears to Macy's have copied Kohl's approach. And on the discount end, Wal-Mart Stores has added national brands and improved the quality of its apparel. However, none is as aggressive in competing with Kohl's as J. C. Penney is. Penney's new CEO, who was Apple's top retailing executive, is shaking things up. He's launching several new strategies including creating dozens of ‘stores within a store,' cutting back on private labels, eliminating sales in favor of everyday low prices, and making the center of the store a ‘town square' space for events and attractions. "The idea is to make stores more inviting, highlight brand names, and gain more control over pricing." Despite these changes at J. C. Penny, in the latest (early January 2012) Harris Poll, Kohl's edged out J.C. Penny as the top choice for customer relationships. An analyst said, "While neck and neck with J.C. Penny on several metrics, what really stands in Kohl's favor is the customer's perception of the unique benefits offered by the department store." Although Kohl's seems to be on a winning streak, competitor actions and other external trends will keep strategic decision makers on their toes for a while!

Discussion Questions

1. What external areas and trends do you think strategic managers at Kohl's have to deal with?

2. If you were a strategic decision maker at the headquarters of Kohl's, what types of external information would you want? What if you were a Kohl's local store manager? What types of external information would you want?

3. Go to Kohl's web site [www.kohls.com] and find the latest Kohl's Fact book. (Hint: Look at the Investor Relations section.) What strategic initiatives is the company pursuing? Take one of those strategic initiatives and discuss how it will help Kohl's exploit external trends.

4. What industry/competition opportunities and threats do you see in this case?