Kohl’s Takes Baby Steps Toward Growth With New Babies ‘R’ Us Partnership

As Kohl’s finds partnerships to be a bright spot in an otherwise challenging retail environment, the department store chain is teaming up with Babies “R” Us to further expand its store-in-store offerings.

The company announced Tuesday (March 12) alongside its fourth-quarter and full-year fiscal 2023 financial results that it is partnering with the baby retailer to open 750-2,500-square-foot shops inside its Kohl’s stores and to sell Babies “R” Us products online.

“This partnership provides a significant growth opportunity in a large category that has been displaced in recent years and builds on our existing assortment while broadening our reach with younger customers,” Kohl’s CEO Tom Kingsbury told analysts on a call. “To capitalize on the opportunity, we plan to open Babies ‘R’ Us shops in approximately 200 Kohl’s stores in fall of 2024.”

Certainly, the brand’s existing store-in-store efforts have helped drive performance. For instance, its work with Sephora has been instrumental, yielding “exceptional results,” per Kingsbury. He noted that sales via this partnership were up 90% year over year for the full year (with comparable sales up more than 25%) and 70% for the quarter. By the end of the year, the partnership spanned 910 shops — 860 large-format locations and 50 smaller ones.

“2023 was truly a breakout year for our partnership with Sephora,” Kingsbury said. “We delivered more than $1.4 billion in sales. … In 2024, we’ll further expand our partnership, opening approximately 140 smaller format shops, and in 2025 we will roll out a Sephora presence to the balance of the Kohl’s chain.”

The performance of these partnerships proved a bright spot. Overall, for the quarter, the retailer’s net sales were down 1.1% year over year with comparable sales down 4.3%, and for the full year those figures fell to 3.4% and 4.7%, respectively.

The store-in-store model has been gaining ground in recent years. Lowe’s has expanded its in-store pet shopefforts with Petco. Walmart has been introducing new in-store restaurants. Macy’s has added more Claire’s jewelry shops to its stores. Target has been particularly active in this space over the last five years, adding in-store shops from brands and retailers ranging from Apple to Ulta to Disney and expanding its partnership with Starbucks.

These moves come as brick-and-mortar stores continue to be a significant part of consumers’ shopping experiences around the world. The PYMNTS Intelligence study “2024 Global Digital Shopping Index: The Rise of the Click-and-Mortar Shopper and What It Means for Merchants,” commissioned by Visa Acceptance Solutions and drawing from a survey of nearly 14,000 consumers across seven countries, finds that 71% of shoppers prefer to interact with stores when they shop. Plus, 1 in 3 shoppers prefer to avoid digital channels altogether.

Amid this ongoing enthusiasm for brick-and-mortar, Kohl’s efforts to improve the on-site experience go beyond its in-store shops. By repositioning store layouts, optimizing product displays, and introducing new brands, the retailer aims to create a more engaging and relevant shopping environment for its customers. These moves come as digital takes a hit, with the brand’s eCommerce business down 10% in the quarter.