Kohl's CEO: Brand Partnerships, Omni Services Position the Department Store for Future Success

In a session last week during the National Retail Federation's (NRF) inaugural Retail Converge event, Michelle Gass, CEO of Kohl's, discussed how a careful auditing of the department store's brand portfolio, including an upcoming launch with beauty leader Sephora, as well as the roll out of omnichannel services such as buy online, pick up in-store (BOPIS) and curbside pickup have helped the company survive a challenging time during the pandemic, while also positioning it for future success.

Gass was interviewed by Phil Wahba, senior retail writer, Fortune, during a keynote session on Wednesday of the week-long digital event. Here are several highlights from their conversation.

Trends That Kohl's Can Capitalize On

When asked by Wahba what are the trends that Kohl's is tracking, and where does the company think it can capitalize, Gass cited its portfolio of proprietary (e.g., SONOMA, Croft & Barrow) and national brands (e.g., Nike, Under Armour), as well as omnichannel services that cater to consumers' ease and convenience, such as BOPIS and curbside pickup.

"I think the real power for Kohl's is omnichannel," Gass said. "We've been able to successfully weather the storm over the last 15 months. There were certainly some long and dark days, but we're coming out the other side. I know there have been a number of competitors that have not been as fortunate, but now that's market share opportunity for us. The ease we have, off-mall presence, BOPIS and curbside, complemented with a very high-growth, now $6 billion digital business" will help Kohl's to capture that market share opportunity.

Rising Consumer Expectations

Gass noted that the bar has been raised when it comes to consumers' expectations around the ease of convenience of shopping experiences, including across multiple channels. That includes within retail stores, which shoppers are increasingly returning to as the pandemic wanes.

"Digital through the pandemic saw a dramatic acceleration, but customers are still going to want to have fun in-store shopping experiences," notes Gass. "We're just really at the beginning stages of normalcy. For us, the stores are key. And we are thinking about them differently. They are an omnichannel hub for our customers. Multichannel customers are four to six times more valuable for us. If they're making a decision that they want to spend time in a Kohl's store, we want to ensure that they have a spectacular experience. We're elevating the overall shopping experience without giving up the ease and convenience."

For example, Gass cited Kohl's partnership with Amazon.com, in which the department store accepts product returns for the online retailer, as a key piece of its in-store services. She noted that Amazon gets a seamless experience and convenient experience for its customers, while Kohl's gains foot traffic and new customers entering its stores.

In addition, Kohl's has made some noticeable changes to its stores during the past year. The department store has reduced its brand inventory by 20 percent vs. 2019 (pre-pandemic), freeing up space within its four walls. The strategy has resulted in in-store aisles being freed up, allowing for more browsing by shoppers. Furthermore, narrowing the product selection has led to fewer clearance items, higher sellthrough rates, and improved profit margins.

"We've eliminated more than 25 private brands across the store, and notably 10 of them were in women’s [categories]. As we like to say, edit to amplify. Really focus and hone in on the brands that are truly iconic to Kohl’s (e.g., Sonoma, Jumping Beans), and then making space to double-down on the national brands, both the ones we have and the ones that are coming."

Speaking of national brands that are coming ...

Capitalizing on the Sephora Partnership

Last December, Kohl's announced that it had agreed to a multiyear partnership with leading beauty retailer Sephora. Starting this coming fall, "Sephora at Kohl's" will be a fully-immersive, premium beauty destination, designed within a 2,500 square foot space and prominently located at the front of 200 Kohl's stores. The partnership will expand into at least 850 stores by 2023.

The partnership is one piece of Kohl's strategic push to become a destination known for catering to consumers' active and casual lifestyles. This includes a deeper penetration by Kohl's into the apparel, beauty and home categories.

"We want to be known as the place to go if you’re updating your wardrobe," Gass told the virtual audience. "We're making a big bet on beauty, but part of the broader Kohl’s promise in the active and casual lifestyle (beauty, apparel, home). Men’s and women’s active are moving to the front of the store, along with the Sephora beauty sections. We believe this will have a nice halo effect."

Gass expanded on the potential benefits that Kohl's can offer its brand partners, including Sephora, Tommy Hilfiger, Eddie Bauer, and Cole Haan. It all revolves around the department store's overarching vision to cater to consumers' active and casual lifestyles, amplifying brands that fit into that strategy.

"We have a tremendous opportunity for brands to view Kohl’s as a key partner," says Gass. "[Kohl's has] significant platform and reach with its omnichannel services. A thoughtful, edited and inspiring brand portfolio. Eighty percent of the U.S. population live within 15 miles of a Kohl’s. We can leverage BOPIS and curbside for brand partners. Our brand portfolio and omnichannel capabilities set us apart."