Kohl’s is at a Crossroads

Kohl’s is at a Crossroads

Kohl's is at a Crossroads

Kohl’s is struggling, and there are a lot of debates about how the store should proceed.

Kohl’s Current Situation

Kohl’s is the largest department store chain in the United States, and has over 1,100 stores across almost every state in the nation.

However, in recent months, Kohl’s has been vocal about wanting to shift away from the department store model by adding Sephora mini-stores inside current stores and opening smaller locations.

A couple of years ago, Kohl’s was still growing amid overall department store troubles, thanks in part to being located outside of malls.

However, Kohl’s has run into difficulties recently with stagnating sales and partnerships that have often not led to any meaningful results. But one recent change Kohl’s has made is raise the rewards rate for its loyalty program, Kohl’s Rewards, to 7.5% from 5% when using a Kohl’s Card.

One investment firm, Engine Capital, started pushing months ago for Kohl’s to sell its online division, saying it was worth more than the business as a whole.

Kohl’s has been facing pressure from other activist investors as well. Most recently, Macellum Capital Management, has also been urging the chain to make changes or sell itself, and it tried to take over the board of directors by replacing the current slate with Macellum’s own nominees. This was after Kohl’s blocked anyone from owning more than 10% of its shares (“poison-pill”). Stockholders rejected Macellum’s attempt at reshuffling the board and renominated all the current members.

Kohl's Logo

But Kohl’s has been considering a sale, and among the 25+ interested parties are the owners of JCPenney. However, Macellum has criticized the process for a lack of transparency and clear goals, and sources close to those involved think Kohl’s and/or executives are secretly hoping a sale won’t happen despite publicly announcing they’re accepting bids for a few more weeks.

First quarter results for Kohl’s were well under predictions, and Macellum wants to know why these results weren’t revealed until after the shareholder’s vote.

In addition, two executives are departing during the search. One executive left in mid-May, and another’s last day is June 1st.

A Sale, Spin-off, or Another Approach?

Kohl’s stock is currently trading for around $40 a share, near its low for the past year.

Kohl's Stock May 2022
Via Google

Outlets report investing groups were or did prepare offers from about $64 to $68 a share, which would be at or above its January price, which was the highest it has been in the past year.

However, back in December 2021, Engine Capital thought Kohl’s could get about $75 a share, and Kohl’s took the “poison pill” because it believed it was being undervalued.

So the company is in a bit of a mess right now, with one activist investor pushing for bigger changes, and they can use the latest financial results as evidence as to why they’re right. But if Kohl’s does sell, they could end up in a leveraged buyout.

Leveraged buyouts are the types of deals that have doomed companies like Sears and Toys R Us.

Of course, not every leveraged buyout ends in disaster, or otherwise, not too many people would do it. But as Vox reports:

“Researchers at California Polytechnic State University recently found that about 20 percent of public companies that go private through leveraged buyouts go bankrupt within 10 years, compared to a control group’s 2 percent bankruptcy rate over the same time period.

Even an industry-friendly study out of the University of Chicago found that employment shrinks by 4.4 percent two years after companies are bought by private equity, and worker wages fall by 1.7 percent. The type of company matters as well — employment shrinks by 13 percent when a publicly traded company is bought by private equity, but it increases by the same percentage if the company is already private.”

Investors pushing for Kohl’s to sell off its ecommerce business point to Saks Fifth Avenue as a successful example, but that’s the opposite of Kohl’s current strategy as well as the direction competitors like Amazon and Walmart are moving.

Kohl’s and the Anime Fan

Kohl’s carries some anime-related apparel and accessories, including online that ship directly from the manufacturer. That’s how Pokémon can have over 400 search results. Beyond that, their apparel offerings for anime/geek-related products can sometimes be slimmer and/or slower to refresh than some other places, both in and out of the mall. Even brands like Hello Kitty, which have a lot of popularity and themes, aren’t carried much.

Kohl's Naruto search results
Search results for “Naruto”, including non-Naruto sponsored results

Kohl’s sells video game products as well. Shoppers have scored some good deals on the latter, especially during Black Friday when they could earn Kohl’s Cash on consoles and more. For instance, $90 with the purchase of a Nintendo Switch bundle, which could be used later to pick up a game or whatever else you wanted.

Kohl's Switch Deal 2019
From Kohl’s Black Friday ad in 2019

However, stock has always been very inconsistent, and the chain seems to be carrying fewer and fewer products. Currently, “Nintendo Switch” only brings up three results. The other systems also have limited-to-no offerings

At the very least, that’s part of the problem in my opinion: Kohl’s has an identity crisis. When it first opened in my area, my family enjoyed going there since you pretty much could use a coupon on anything. Then they started carrying more electronics, toys, and higher brands, and with those additions came more restrictions. I’ve also noticed places like Walmart, Kohl’s, and Forever21 have been carrying more of geek streetwear (including anime), so there are fewer reasons for me to stop by Kohl’s in-store or online.

The store has also been tightening the belt by limiting the number of times their monthly cardholder coupons can be used. Kohl’s does have its advantages, especially in the home department with small appliances. But I’ve also noticed candy sitting for months after the holiday and only having minimal discounts.

In short, as many analysts have stated, Kohl’s has found themselves stuck in the middle between the Target/Walmart (wide range and low prices), TJMaxx/Ross (bargain hunting), and Neiman Marcus/Nordstrom (luxury) wings of retail. There is a big power struggle going on about which path it needs to follow. Kohl’s says it no longer wants to be a department store, but then what kind of store should it be?

Are you a Kohl’s shopper? Why or why not? What should Kohl’s do to increase its sales?

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