Despite some green shoots, Kohl’s new CEO faces uphill battle to win back AWOL customers | Luck

Now for the bad news: Kohl’s is still bleeding. And to stop the downward spiral in which the department store finds itself, it will have to make big moves that may deprive its employees of some of the stability they crave.

On Monday, Kohl’s announced that longtime board member Michael Bender will become its CEO after six months in the role on an interim basis following the firing of his predecessor for serious ethics violations. And on Tuesday, the department store chain reported that third-quarter sales fell by a less-than-expected 2.8% to $3.41 billion. It now expects them to decline by 3.5% to 4% for the full fiscal year — a smaller decline than previously expected. Kohl’s shares rose 35% following those signs of progress. Bender also protected Kohl’s profit margins by deftly managing inventory levels and cutting costs.

All well and good. But Bender’s real job must be to win customers back — not just manage the decline. The latest quarter was the 15th in a row that sales have deteriorated, a trajectory reminiscent of the dramatic declines — which led to bankruptcies — at JC Penney and Sears a few years ago.

Kohl’s has lost millions of customers and its business is now 22% smaller than it was in 2019, while TJ Maxx, Walmart and Target are now much larger. Last year, Kohl’s saw sales decline by double-digit percentages in all categories except Sephora stores.

“Over the past several months, I’ve seen us work more efficiently and with more urgency to improve our business,” Bender said in a video sent to employees this week, saying he was taking the top job, making him one of only 10 black CEOs in Fortune 500. “I see your drive to win.

To halt that decline, Bender needs buy-in from Kohl’s 87,000 employees, a workforce that has dealt with four CEO changes and a lot of chaos in as many years. (His predecessor, Ashley Buchanan, was fired in May after just four months for steering Kohl’s business to a company run by his romantic partner.)

And timing is of the essence: The holiday season, which generates about 30% of annual profits, kicks into high gear on Friday.

We have a difficult task ahead of us

Of course, less heavy bleeding is not the same as a return to health. And those initial green shoots that Kohl sees won’t be enough on their own to return to long-term growth. Revenue peaked in 2012 at $19.3 billion, then stagnated for several years before beginning to decline more rapidly in 2019.

In a tough climate for department stores and all brick-and-mortar retail, Bender will have to figure out how to make Kohl’s grow again. Before taking the role, Bender was Kohl’s board chairman and signed off on multiple turnaround efforts that ultimately failed. And he played a central role in electing Buchanan.

Although he’s a veteran retail executive who ran the small optical chain EyeMart Express and previously worked at Walmart Inc., Bender will have to lean on his C-suite reports, including his head of merchandising, in key areas that are operationally newer to him, including apparel and home goods. His top priority will be convincing the customer to go to Kohl’s rather than TJ Maxx, Target, Macy’s, or (perhaps most importantly) just click “buy” on Amazon.

Reclaiming defectors

Founded in 1962, Kohl’s boomed in the 1990s and 2000s when traditional mall stores struggled. The Wisconsin-based retailer has found a winning formula: sell national brands found in department stores alongside cheaper house brands without forcing shoppers to go to the mall. Its stores were smaller and more manageable than those of its competitors, and were usually located in “strip” centers, closer to where customers lived, with easier parking.

But that advantage became less essential or unique as Amazon and e-commerce took off: It simply mattered less to shoppers where stores were physically located. Chains like TJ Maxx have stolen market share all along by offering big brands at deep discounts. And Kohl’s private labels, such as Arizona, fell out of favor with customers in 2010. Kohl’s has recently been seen as losing its price advantage.

“Kohl’s shoppers are laser-focused on value for money, and most defectors feel Kohl’s is falling short of that promise,” said Neil Saunders, chief executive of GlobalData, citing his firm’s market research.

Bender is keenly aware that consumers are being squeezed and are becoming more discerning in their purchasing decisions as a result, telling Wall Street analysts: “Our customers have more and more choice as their discretionary income remains under pressure.”

To win them back, one big step was to limit the exemptions Kohl’s applied to the use of its coupons, which had long been key to attracting shoppers. The retailer added more lower-priced items and also highlighted Kohl’s store brands, which are typically more modestly priced than national brands. “We’re seeing sales going down,” said Kohl’s chief marketing officer Christie Raymond Luck a few weeks ago.

In recent years, Kohl’s has lost many customers as it has de-emphasized reliable categories such as women’s clothing, jewelry and small apparel. Bender said much of the recent improvement at the company has come from renewing its assortment in those product groups.

All of that led the company to raise its forecast for 2025, which analyst Dana Telsey of Telsey Advisory Group called an “encouraging sign” as Kohl’s figures out how to get customers back into stores and regain market share, warning it will take time.

Bender himself acknowledged this. “We are pleased with the results,” he said, “but we still have more work to do.”