Digital sales flat at Kohl’s as the omni-channel retail balance remains elusive

Stuart Lauchlan Profile picture for user slauchlan August 22, 2022
Summary:
Kohl’s has been falling behind on the omni-channel retail front, despite some big digital initiatives.

Kohls Amazon

US retailer Kohl’s has had a bumpy ride in recent years in its attempts to find an omni-channel balance. Things are getting no better.

The firm’s most recent quarterly numbers, released last week, show that digital sales were flat year-on-year, now accounting for 28% of total. Of that percentage, 40% of digital sales came via the Kohl’s app, while stores fulfilled 37% of online sales. Store sales themselves declined ten percent, a result of lower footfall, smaller basket sizes and overall macro-economic pressures.

So it’s pretty grim all round, although CEO Michelle Gass continues to put a positive spin where she can:

Our second quarter results reflect a middle-income customer that has become more cost-conscious and is feeling greater pressure on their budgets. Therefore, we are seeing customers make fewer shopping trips, spend less per transaction and shift towards our value-oriented private brands.

We have navigated difficult retail environments in the past, and I'm confident that we will successfully manage through the current uncertainty. We have the right long-term strategy and initiatives and a formidable foundation featuring a differentiated brand portfolio, strong value position and a convenient and broad-reaching omni-channel platform

Digital effort

That’s commendable optimism, perhaps, and it’s certainly the case that there are digital transformation initiatives underway and being introduced, so there is effort going on. Kohl’s has a claimed customer base of more than 65 million, with shoppers visiting the website over 1.7 billion times annually and, according to the firm, engaging across email and the Kohl’s App.

Last month the firm announced an expansion of Kohl’s Media Network (KMN), the company’s in-house retail media agency. KMN is intended to harness Kohl’s omni-channel presence, knowledge of its customer base, and 60-year history in retail to “connect brands with their intended audiences and provide valuable business insights that demonstrate measurable results” and provide a platform for the firm to “leverage its data assets, loyalty program, media buys and sales channels into revenue and strong results for advertising partners”. The retailer says it enables brands to “share their own story and advertise on Kohl’s digital platforms and through off-site digital advertising”, with on-site channels including sponsored product ads, brand pages, email ads, and Kohl’s App push notifications.

The firm has also extended its self-pick-up services, making it available on eligible kohls.com orders at more than 1,100 stores. Kohl’s reckons to have a store within 15 miles of 80% of American citizens.

Customers can choose In-Store Pickup while ordering.  They receive a ‘Ready for Pick-up’ email that also specifies their designated Self-Pickup area. According to Kohl’s chief technology officer Siobhán McFeeney:

At Kohl’s, we’re focused on listening to what shoppers want, and using technology to make it as easy as possible for families to get everything they need quickly, and through a simple experience. Our customers love the convenience of same-day Buy Online, Pickup In-Store, and now we’re taking the experience to the next level. With some of the busiest months ahead for both customers and associates, we’re excited to offer Self-Pickup at every store for an easier and more efficient omni-channel experience.

And then there’s the long standing tie-up with Amazon to act as a returns department for the online giant’s customers. Goods bought on Amazon.com can now be returned at all Kohl’s US stores. Kohl’s takes in  "eligible" returns from customers free of charge and package and sends them to Amazon return centers. The idea then is that customers will want to spend time in the Kohl’s stores themselves and buy from the retailer.

Smelling sweet

Given that store traffic is down year-on-year, there may be a flaw in that thesis, but using other brands to get people through the door of Kohl’s stores is regarded as a winning formula, it seems, with the firm’s partnership with hosting perfume giant Sephora in-store also being expanded. Gass says:

I am especially proud of the strength of our partnership with Sephora. Our collective teams work very closely together with the common goal of driving the business for both the short and long term. What we have achieved together in less than one year is remarkable, and we're just getting started. We see a long runway of growth ahead.

As planned, we will open another 250 shops in 2023, taking our total to 850 2,500 square feet shops. Given the success of the partnership we are seeing to date, we are working with Sephora to design a smaller footprint concept for our remaining 300 stores, creating a Sephora presence across our entire store base.

There’s also joint development work going on on the digital front, she adds:

We're also innovating and experimenting together to drive productivity and improve the overall customer experience even further. We’re currently testing cross-company BOPIS [Buy Online, Pick-Up In Store] where purchases made on Sephora's website, sephora.com, can be picked up at Kohl's stores, creating an incredibly seamless and convenient experience for our customers. And next month, Kohl's will begin to accept any Sephora gift card regardless of where customers bought it.

Later this year, we will significantly expand our holiday gifting assortment and increase our marketing investment, setting us up well in the 600 stores and digitally for a big traffic driver during holiday. We are excited about all that is ahead for Sephora and the impact this partnership will have on our business. And as a reminder, we are just completing the build-out of this year's 400 stores. So the vast majority of Sephora's business impact is still in front of us.

My take

2022 has turned out to be very different than we anticipated. The weakening economic backdrop and inflationary pressures have created headwinds for our customers, our industry and our business. We are leveraging our agility and responding with the customer at the center of our focus. Kohl's has navigated many difficult periods in the past, and I'm confident we  will this dynamic period as well.

Well, there’s nothing like optimism…

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