Kohl's Snap

Flying just a little bit less high these days
Posted August 4, 2003

I recently told retailers from Australia and India I thought the two dominant trends in U.S. retailing are discounting (who's the world's largest company?) and the demise of the traditional department store.

When I showed contrasting images of Marshall Field's historic Chicago flagship and a 21st Century Kohl's store, I could sense the buzz from both audiences. Field's, with its towering atrium, elegant presentations, temple-like atmosphere; and Kohl's, with its stacks of goods neatly folded, minimal visual merchandising, orderly but hardly inspiring environment.

Too bad for visual, but Kohl's represents exactly what's happening in our current economy: people shopping for price, time and efficiency. Save them the dramatic shows, just make plenty of goods accessible, with wide aisles for their strollers and a centralized place to pay.

The traditional department store model, on which most of what we know of store design and visual merchandising was built, seems heading for distinction, the dodo bird of the new millennium, victim of a changing culture and staggering economy.

While some department store organizations have headed fearlessly into the future, creating exciting, interesting, interactive new models, others have chosen to imitate Kohl's one-story, centralized-checkout stores. (Still others have hesitated, uncertain of where to go, slashing prices in hopes of getting people into the stores.)

But Kohl's continued to rack up enviable double-digit sales increases and an aggressive expansion program. (It now has 492 stores, versus 76 a decade ago.) So strong did Kohl's appear to be that it was rumored to be the leading candidate for many of the former Kmart stores, even though the Kmart model is exactly what Kohl's is not - huge, untenable spaces in no-longer-viable locations.

But Kohl's no longer seems to be outrunning the department store miasma. Its stock price has declined by 28 percent over the last 12 months. Its same-store sales figures have flattened, more in line with the rest of the industry. And it seems to be paying a price for its rapid expansion: New stores may be doing all right, but older stores are now declining. If Kohl's is still enjoying sales increases, it's due more to expansion than to same-store sales improvement.

Kohl's insists its problems are temporary. ("We had more footsteps in our stores than last year," president Kevin Mansell told stock analysts this spring.) And others insist Kohl's issues are no different from all other retailers. The economy is slumping, and when it rebounds so will Kohl's business. They also say Kohl's is battling the high expectations it had established; single-digit growth is still good in an industry where others are flat, but not compared to its previous performances.

Perhaps true. But Kohl's problems also expose what happens when growth outpaces the ability to manage it: too many underperforming stores, too many inventory-management problems.

Kohl's may well be simply reflecting the issues and dilemmas of all retailers, especially other department store organizations. But that is sad. For one thing, it demonstrates again how hard it is to succeed in this business when the stars are aligned against you.

For another thing, it raises a dilemma for other retailers: Whom, now, should they imitate?