In the wake of a “kitchen sink” quarter that saw the ailing department store chain close out the year with a money-losing Q4, Kohl’s new CEO is staking the retailer’s comeback on a new management team’s ability to boost the customer experience while continuing the expansion of its successful Sephora joint venture.
Speaking to investors Wednesday, CEO Tom Kingsbury, who was appointed to the role permanently on Feb. 2 after filling in for former lead Michelle Gass who left for Levi’s after four tumultuous years, said improving customer experience was the first of four priorities.
“Our partnership with Sephora is an excellent example of how we are enhancing the customer experience,” Kingsbury told analysts and investors on the company’s earnings call, noting that nearly 8 million customers purchased beauty products at Sephora at Kohl’s last year.
“In the fourth quarter, our total beauty sales increased 90%, and we achieved high-single-digits percent comparable beauty sales growth in the 200 Sephora shops that opened in 2021 and better than expected sales in the 400 shops opened in 2022,” he added, noting that this trend should continue to grow in the coming years as Kohl’s further expands its store presence.
In a market where Kohl’s gets squeezed from below by scale by Walmart, online by Amazon and out-hustled by Target, the Wisconsin-based chain that touts 1,170 physical locations that sit within 10 miles of 80% of the U.S. population is clearly in a tight spot when it comes to identity.
While expressing confidence that he has the right plans, organizational structure and team in place to drive improved and more consistent sales and earnings performance, Kingsbury also said he wanted to be realistic in setting expectations.
“The full impact of our efforts will take some time, it won’t happen overnight, and we must acknowledge that we are implementing these actions in a challenging macroeconomic backdrop,” he said.
Still, after visiting stores, staff vendors and partners across the country, Kingsbury also said that it was “clear to me that Kohl’s fills an important need in the market,” offering what he called “highly relevant products at a great value to millions of customers at conveniently located stores across the U.S. and online.”
Much of these changes, including the opening of another 250 Sephora full-sized shops as well as 50 smaller-format ones this year, will fall under the watch of the newly formed executive team Kingsbury has assembled.
Just yesterday, it was announced that 30-year retail veteran Dave Alves would be joining the company in April as its new president and chief operating officer, as well as the prior appointment two weeks before of 25-year retail veteran Nick Jones to become Kohl’s new chief merchandising and digital officer.
Another turnaround task the new team will take on has to do with pricing and promotion, the latter of which — especially coupons and QR codes — have long been a big part of Kohl’s loyalty strategy but are now coming under review and reduce the retailer’s reliance on general promotions, which cost it dearly in Q4.
“We will test everyday value pricing with a small percentage of our product assortment, and if successful, grow it appropriately in subsequent years,” Kingsbury said. “We fully recognize the sensitivities around pricing with our customers and will approach this with great measure and flexibility,” he said (emphasis his).
Even so, stores are and will continue to be incredibly important to Kohl’s he said, as they account for 70% of sales, but Kingsbury said the retailer had to do a better job of boosting in-store productivity.
“To summarize, enhancing the customer experience, accelerating and simplifying our value strategies, managing inventory and expenses with discipline, and strengthening the balance sheet are our four overarching priorities for 2023 and the broader Kohl’s organization is aligned and focused on executing against each of them,” Kingsbury said.
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