Loving the stores - Kohl's builds omni-channel thinking around retail real estate

An interesting theme that’s being heard more and more frequently from retailers with omni-channel ambitions, is that the biggest weapon in their arsenal to fend off the marauding hordes from Amazon Prime is their bricks-and-mortar legacy.

While there was much headline-grabbing attention last week from Macy’s decision that 100 of its stores are not worth more as real estate than as a retail outlet, other brand names, such as Nordstrom and JC Penney see bricks-and-clicks as increasingly important in providing a competitive alternative to the clicks. It’s a view that was most explicitly articulated by JC Penney CEO Marvin Ellison earlier this week when he said:

Any brick-and-mortar retail that think they can go head-to-head with a pure play e-commerce company by simply doing it online, I think is in for a rude awakening.

It’s a sentiment that would no doubt meet with approval at US retailer Kohl’s which sees its offline stores are crucial in enabling its ship-from-store program to fulfil e-commerce orders at a rate that can compete with Amazon Prime. The firm reckons it’s now able to conclude transactions and deliveries in less than two days - or at least it can 90% of the time which isn't quite Amazon Prime levels perhaps, but pretty close. 

There are signs that this is working. Ship-from-store and click-and-collect sale accounted for 21% of the company's total dollar online demand in the second quarter. At a time when pure bricks-and-mortar sales are declining, e-commerce engagement is increasing, says CEO Kevin Mansell:

In our focus around omni-channel initiatives, we continue to see strong results in digital demand, with online-generated demand achieving a mid-teens increase. We continue to invest in technology and training in our stores to allow us to ship from store and provide buy online, pick up in store capabilities, providing faster shipping times and more convenience for the time-strapped customer.

The company is investing heavily in pure digital tech, particularly around mobile and customer loyalty, with the Kohl’s app having now been downloaded by north of 13.5 million users. What’s interesting here is that the app brings with it digital wallet capabilities that mean that customers can pay for purchases with Kohl’s Charge and simultaneously earn Yes2You Rewards loyalty points with a single tap using Apple Pay.

Kohl’s reckons this makes it the the first retailer to  be able to deliver a one-tap checkout that integrates both its private credit card as a form of payment and successful loyalty program with Apple Pay.

Back to the shop

But that bricks-and-mortar asset is something that Mansell returns to:

In terms of competition, we continue to see and we expect that both Amazon and, generally, off-price space is gaining share. And so, to the extent we can, we are really focused on making changes to our business model that would just allow us to compete more effectively. One of the things that we're probably doing and have a stronger point of view about is the importance of our stores to do that.

Long-term, we think that our stores are really important. More and more, we're seeing the role and relevancy of the store come to life, through being able to use our stores as shipping points for customers as they go online to buy product, but also as pick-up points as customers choose the convenience of buying online but picking up in the store and, therefore, avoiding any shipping or time delay as well.

The belief in the importance of the stores as the foundation of omni-channel retail is only getting stronger, he adds:

I think we all feel that the role of brick-and-mortar stores in our future. We’re actually more convinced about it than less convinced about it. Now, there can be individual stores, as we go through the next few years, that [we] might determine financially don't make sense to have, but if you think about all the things we're talking about, whether it's the rollout of 35,000 square foot stores as a potential to replace larger stores over time, or it's all of the easy experience initiatives that we're implementing, or it's the adoption of buy online, pick up in store and our utilization of ship from store to make customer convenience on online orders easier, they all, to a great extent, kind of point us toward saying that having a really strong base and portfolio of stores is an important element of why we're actually going to be successful in the future.

In other words, don’t expect a Macy’s style store closure program any time soon - or at least not an elective one. Mansell says:

Fewer stores, generally, are not going to be a ticket to success, in our mind.

My take

It’s been interesting to observe the realisation among the so-called ‘legacy’ retailers that the shift to online doesn’t mean getting out of the malls and the high streets and into trying to become Amazon-analogs. There’s much to be said for the offline shopping experience when executed correctly and when that offline presence is a carefully-positioned and thought-through component of an omni-channel strategy. Kohl’s thinking around this is sound - leverage the stores to provide the convenience of online ordering and physical shipping, while investing carefully in some innovative digital stuff, like the digital wallet capabilities.