Amazon alliance is boosting footfall in store at Kohl's, but not sales to any great effect

Profile picture for user slauchlan By Stuart Lauchlan March 5, 2020
Summary:
Kohl's partnership with Amazon is getting people through the front door, but getting them to spend money when they're there isn't so easy...

A recurring theme of omni-channel transformation in the retail sector has, as noted many times, been a growing awareness among ‘legecy’ brands that their offline stores can be a major asset rather than the burden they were presumed to be at the height of ‘Amazon-envy’.

There are those who in fact never fell out of love with their stores, most notably Target. Another brand that was talking up its physical assets as far back as 2016 was Kohl’s, where the then-CEO Kevin Mansell said of the firm’s bricks-and-mortar portfolio:

Long-term, we think that our stores are really important…We’re actually more convinced about it than less convinced about it…Fewer stores, generally, are not going to be a ticket to success, in our mind.

Flash forward to 2020 and Mansell’s successor Michelle Gass holds on to that position even as digital sales hit 25% of total revenue - “a more pronounced shift to digital than expected”. Mobile and the Kohl's app together accounting for 75% of traffic, and more than half of sales. Gass says: 

I am especially pleased to see our efforts in driving app adoption paying off. For 2019 we had a record number of active app users approaching 16 million. Relative to the industry this level of app engagement is best in class, and it's translating into higher conversion and spending…Those tend to be our most loyal and engaged customers. We see greater purchase frequency and we see bigger baskets, so continuing to get people to adopt that is a key priority.

The Kohl’s website has also been given an upgrade: 

From a digital perspective, two weeks ago, we launched our new site experience following a successful pilot over the holiday period. The goal of the new site experience is to provide greater inspiration and storytelling around our products, while continuing to drive our value message. Importantly, we've significantly enhanced our capabilities around filtering, personalization and search.

One of the biggest initiatives we have for the digital experience is this new site experience where not only has it enhance the overall experience, but real sort of building blocks of things like personalization and filtering, which enhance that conversion. So that's a key priority for us.

Personalization and loyalty are two priorities for 2020. Gass explains: 

From a personalization standpoint, this has been a journey we've been on now for several years, enabling the data and analytics and now driving that really across every channel of business. We're driving in our digital channel, our e-commerce platform. We're driving in things like our emails, and we're also driving in social media. And we are seeing a higher conversion rate, both in our stores and online. So that will be a very big focus as we now convert these new customers…it grew our overall customer base, and our customer retention is stable. And that's a direct result of these personalization efforts. On loyalty, we've been testing and piloting the next-generation loyalty program for some time now. We've had a few different iterations. We're a test-and-learn culture, [and] feel very confident that we're now on the path for the program in the future. 

The company has also re-examined its wider digital marketing strategy, says Gass: 

This past year, in fact just the past back half of the year, we brought some of our capabilities in-house from a digital search standpoint and that is driving good returns for us. We're getting greater impact, and it's more efficient. So we're encouraged by that. We also have tremendous partnerships with our digital partners on the West Coast, so with folks like Google, with Facebook, with Pinterest and they're innovating along with us in terms of driving greater impact. When I look ahead, I think the whole impact of social media and influencers, we're still in the early days of that, but we see that as a big opportunity to drive even more engagement in our digital channels and especially with that younger customer.

Still loving the store

In terms of getting customers into stores, a major asset has turned out to be Kohl’s partnership with Amazon which enables customers of the online giant to use their nearest Kohl’s store as a hub for returning unwanted items. Gass says: 

It's worth noting that our original pilot markets, which have been in place for over two years, continue to perform very well. This gives us confidence as we move forward with the nationwide partnership that we have an opportunity to build on our performance…We’re really encouraged. We're pleased with the program. We continue to learn a lot. We're getting the traffic. I'd say the focus areas for the team, is to continue to drive that momentum, the customer engagement.

Another driver to boost visitors to stores is a focus on rolling out Buy Online, Pick-up In Store (BOPIS) services. This has a twin benefit of getting customers to visit the physical location while also removing the cost of delivery from digital fulfilment. Gass explains: 

BOPIS continues to be a top priority for us as it relates to fulfilling our digital business. We love BOPIS because, number one, it gets our customers in the store. And then secondly, it has a nice benefit to cost of shipping. And we are continuing to see both our Buy Online, Pick-up In Store and Buy Online, Ship-to-Store in combination grow year-on-year and I think there's more opportunity there. So you can expect in 2020 for us to be marketing that more aggressively and offering enhancements for our customers to be incented to come and do a Buy Online, Pick-up In Store.

My take

A lot of what Kohl's is doing makes a great deal of omni-channel sense, but there's one major problem - the increased traffic that the retailer is seeing isn't translating (yet) into significantly higher sales. The firm's latest quarterly numbers only show a 0.1% rise in revenue ($6.8 billion), while net income fell 3% ($265 million). The Amazon alliance is expedient in terms of getting people through the doors; the next trick - and the harder one to pull off - is to then convince Amazon's customers to open their wallets and spend with Kohl's.