When loving the store isn't enough - Kohl's omni-channel retail shortcomings exposed by COVID-19 crisis

Kohl’s has been one of the brands most vocal about ‘loving the stores’ as a key component of its strategy in an omni-channel retail world. But without long term investment in the digital half of the balance, you need more than love to cope with the impact of a global pandemic. 

When Kohl’s shuttered all of its outlets on 20 March, it was a decision that inevitably had a significant knock-on impact on its business, lacking, as the firm did, a digital commerce arm that was strong enough to pick up the slack. CEO Michelle Gass does her best to see a glass half full when she says: 

We closed all of our stores on March 20 to do our part in helping to slow the spread of the virus.  We also made the difficult decision to furlough 85,000 associates, most of whom work in our stores and store distribution centers. 

While we have a fast-growing digital business, it has only replaced a small portion of the sales loss from our entire store base being closed during the second half of the first quarter…With our entire store base closed, we responded with speed and agility leaning into our digital business as the only channel to engage with our customers.

We amplified our digital marketing and updated digital site content to be relevant to what customers were interested at this time. We also leveraged our large and growing email file of more than 50 million customers to reach them in new and personalized ways. 

These efforts have paid off, she insists: 

Digital sales increased 24% for the quarter and accelerated to 60% in the month of April…May has accelerated even further from April’s level of 60%. All of the key performance metrics were positive, including traffic, conversion, average unit retail, and units per transaction. And we were pleased to see more new customers and younger customers shopping on our digital platform.

While Target stands as the prime exemplar of re-inventing the role of the physical store in an omni-channel ecosystem, Kohl’s is undeniably playing a hurried - and enforced? - game a catch-up. It’s progress though, insists Gass: 

Importantly, our stores fulfilled a higher percentage of digital orders, which aided our efforts to reduce in-store inventory. More than 40% of digital orders were fulfilled by ship-from-store and customer pickup during the first quarter, and this percentage was much higher in April, following the successful launch of store drive-up where we've seen great customer uptake.

In fact, in the over 900 stores where it is offered, the percentage of digital demand fulfilled by store drive up was 15%, exceeding that of buy online and pick-up in store before the crisis began. While we have been testing this capability in a couple of stores, it was still very new to us. As the health crisis unfolded, our team swiftly put a strategy together and launched at scale very quickly. This is a great example of the responsiveness and agility of our organization.

In truth - and without wishing to diminish the efforts of Kohl’s workforce who have risen to the challenge - it’s an example of the position that the firm finds itself in as a result of years of not paying enough attention to omni-channel shifts in the market. 

Lessons learned 

Even now, there’s a sense that the management team continues to cling to its old belief system to an alarming degree. Gass says: 

Stores are the lifeblood of Kohl's, and more than 90% of our customers have historically shopped them. While the current crisis has had a significant impact to our store business, we continue to see our store portfolio as one of the core assets of our strategy going forward. A key reason for this is that our stores are financially healthy.

Since the day we closed all of our stores, our team has been working on a thoughtful and comprehensive plan to adopt the latest health and safety measures as we reopen our stores. These include operating with limited store hours, social distancing signage, elevated cleaning procedures, a new returns process among many others. We will continue to offer store drive ups as a convenient offering for our customers. 

In fact, only 15% of orders made online are currently picked-up at the store - compare and contrast with the likes of Target. But getting people to the physical store is vital for Kohl’s one significant digital initiative of late - its role as a return depot for returned Amazon purchases. 

This initiative, rolled out with characteristic caution (suspicion?), last year has been flagged up as a retail co-existence success story, but of course if the Kohl’s stores are closed, so too is the ability to process Amazon’s unwanted. Gass says:

We will also resume our Amazon returns program as stores reopen, and we expect to see traffic build as customers return items purchased over the last several months.

As lockdown is lifted around the US, what lessons have been learned? As seen in other parts of the retail sector, the COVID-19 crisis and its side-effects have accelerated underlying trends in customer behavior for many firms. Will this be the case for Kohl’s? Has it taken a pandemic to shake up its ideas, as seen, for example, at Bed, Bath & Beyond? And if so, is there time to put any new ideas into practice? 

Gass says that Kohl’s stance is that “we are planning the business conservatively”, but insist that omni-channel awareness is already present: 

As we, over time, have reviewed our business, looking at our stores proximity and digital sales, they've actually strengthened each other. So, we actually look at that as an asset. Our omni-channel customers, those customers who shop online and in stores, are our best customers. And we're actually seeing those omni customers buying more during this period, obviously online.  We’ll be studying that as we look to more stores opening.

Kohl's is a leading omni-channel retailer with a strong foundation and a loyal base of 65 million customers. Over the last five years, we have enhanced our very healthy store portfolio with a thriving and growing digital business. We view these two channels as not distinct, but highly connected to present a unified experience to the customer. In addition, we've also been able to leverage the operations of both our stores and digital platform to deliver easy and seamless experiences.

OK, nice words from the 'Omni-Channel Retail 101 Handbook', but what does that mean in terms of practical action? Gass elaborates:

When we think about experience, we think broadly on every touch point and interaction we have with our customers across all channels. We see many areas of opportunity to elevate the experience, including refreshing the existing store experience, driving localization and accelerating our digital growth. A few examples include investing to create more compelling merchandising, leveraging in-store technology to drive better customer experience and efficiency and implementing a more tailored approach to local markets. In addition, we will continue to invest in supporting the growth of our digital business, which has more than doubled in sales since 2014.

Our next priority is leading the next generation of loyalty. We have an incredibly strong foundation and loyalty with 30 million members, and we don't take this for granted. We have three key differentiating elements of our loyalty program; our iconic Kohl's cash, our rewards program and the Kohl's Charge private label card. We know that as we move customers up the loyalty ladder, sales productivity significantly increases. To enhance our efforts on this front, we are integrating our loyalty assets and leveraging personalization. 

All of which sounds rather long term thinking at a time when the firm faces a massive short term crisis. But Gass maintains: 

Much of what has made Kohl's the vibrant and resilient retailer it is today will make Kohl's a stronger company in the future. 

My take

Kohl’s went into the current crisis in an unfit state to ride it out. The crisis may have been  unprecedented in scale and certainly not on the planning radar, but Kohl’s lack of digital preparedness over the years has come back to hurt it when such investments might have provided some form of cushion. What depresses most is the ‘conservative’ thinking that still seems to be prevalent. While I’m all for making data-based strategic decisions, this really is not the time to be “studying” trends that are the most basic of omni-channel truths, lessons that should have been learned years ago.