Kohl’s (KSS) is changing its strategy to deal with the disruption in the retail world

Kohl’s Corporation (NYSE: KSS) had a dismal second quarter of 2020 due to the impacts from the COVID-19 pandemic. The company’s revenues fell 23% to $3.4 billion while net profits on a reported basis fell 80% year-over-year. On an adjusted basis, Kohl’s reported a loss of $0.25 per share. The stock has dropped 61% since the beginning of the year.

COVID-19 impact

The COVID-19 pandemic led to store closures and disruptions in consumer spending behavior which impacted Kohl’s business. The company’s stores operated with approx. 25% fewer days than last year and on limited hours since reopening. The majority of stores remained closed for the most part of May.

In June, Kohl’s saw a pickup as most of its stores reopened and also due to strength in its digital channel. Digital sales increased 58% during the quarter while store productivity for reopened stores was approx. 75%.

In July, however, sales decelerated compared to June due to resurgence of COVID-19 cases. The back-to-school selling season also started on a softer note due to uncertainty around how kids will return to school this year. Since most of Kohl’s back-to-school assortment comprises of core products such as basics and denim, the company remains optimistic that it can sell it throughout the year.

The pandemic impacted some categories more than others as home, active and children experienced strong demand while men’s and women’s dress attire saw softness. The home division saw double-digit growth in total sales while digital sales rose 90%. The active category also witnessed a 70% spike in digital sales. However, the home category has lower margins compared to apparel so the company is facing pressure on its margins due to mix.

Looking towards the holiday season, Kohl’s has decided to remain closed on Thanksgiving Day but expects customers to get ahead of their holiday shopping. The company is making adjustments to capture this early holiday demand, anticipated to start in October, and plans to take advantage of its digital and omnichannel capabilities during this time. In terms of assortment, Kohl’s will focus on Cozy and Comfort, Home and Kids toys.

Strategy changes

The ongoing health crisis has driven a shift towards more active and casual lifestyles and has accelerated the adoption of digital shopping. The pandemic has also changed the competitive landscape. The company believes trends such as work-from-home and casual dressing that gained steam during the pandemic will continue even after it subsides.

Kohl’s plans to take advantage of these trends and is building its assortment with more focus on casual and active. The company also plans to lean further into athleisure through both its existing brands and the expansion of its Champion brand.

The company’s stores are supporting its digital business, serving as a fulfillment hub for ship-from-store and customer pickup. The launch of Store Drive Up was successful and is expected to be an important capability this holiday season.  

The pandemic has led to a disruption in the retail industry and several retailers have been forced out of business. Kohl’s is planning on pursuing the market share of these competitors as well as focusing on new customer acquisition.

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