Showing the enduring strength of the in-store experience, Kohl’s reported an improvement in its first-quarter performance compared to last year and plans to further enhance its physical stores, including a large commitment to self-checkout options.
On an earnings call with investors and analysts on Wednesday (May 24), Kohl’s CEO Tom Kingsbury, who took the reins in February after a disappointing Q4 2022, outlined several initiatives the retailer emphasized in Q1 and will continue to build on throughout the year.
Kingsbury said an increase in-store traffic and higher units per transaction “more than offset a lower average ticket driven by our clearance actions.” However, as Chief Financial Officer Jill Timm noted, “Net sales were down 3.3%. Store sales were up low single-digit percent, driven by strong Sephora at Kohl’s growth, as well as our clearance actions. Digital sales were down 19.6% [compared] to last year.”
The Sephora at Kohl’s partnership was arguably the star of the quarter. Kingsbury said it outperformed expectations, “driving a total beauty sales increase of 150% year over year. We achieved mid-teens comparable beauty sales growth in the 200 Sephora shops opened in 2021, and the sales trends in the 400 shops opened in 2022 continue to exceed our plan.”
Noting that the addition of Sephora shops is bringing in new customers that are shopping at more than twice the frequency of the average Kohl’s customer, he added, “It is a great example of how we are enhancing the customer experience. The partnership is delivering on what we set out to achieve over the long term, that is, capitalizing on a significant growth opportunity in the beauty industry by leveraging each company’s strengths to grow our collective customer bases.”
Kohl’s is expanding the Sephora at Kohl’s footprint to over 900 stores by the end of this year, with 200, 2,500-square-foot Sephora shops opening in this quarter and 50 more in Q3. The chain has also developed a 750-square-foot Sephora shop model, adding five smaller shops in Q1, with plans to have 50 by the end of 2023, then going chainwide by 2025.
Reflecting wider industry trends, home goods sales were soft in Q1, but the category remains on Kohl’s roadmap. Kingsbury noted an increased focus on “underpenetrated categories,” including gifting, pet and outdoor. To gain selling space for all of this, he said Kohl’s “is consolidating to one checkout area in most of our stores with a greater selection of impulse items. We’ll be adding self-checkout kiosks in 250 stores to support this transition.”
Reporting that sales through digital slowed in Q1, Kingsbury said, “Our customers continue to shift back towards stores, and we reduced online-only promotions as we work to simplify our value strategies. Digital penetration was 26% in the quarter. While down to last year, this is still up meaningfully versus pre-pandemic levels. Looking ahead, we have various digital initiatives underway including enhancing the site experience, curating our product assortment, and continuing to simplify our value strategies, as well as further refining our Kohl’s Marketplace and Kohl’s Media and Network.”
Additionally, the retailer is enhancing its loyalty program by rolling out a Capital One co-brand card to select customers in Q2. “Over time we expect to benefit from the dual offering of our existing strong private label credit card and a co-brand card that offers more flexibility to reach younger customers,” he said.