Kohl’s Corp. is moving aggressively to reduce the size of its stores following store sales declines in the fourth quarter and for the fiscal year ended Jan. 28.
Kohl’s operates three classes of stores. The standard store size is about 88,000 square feet—970 of Kohl’s fleet of 1,155 stores were this size as of the third quarter. 178 stores were in the range of 55,000 to 68,000 square feet, which the company calls its small size. The remaining seven stores were 35,000 square feet—a size Kohl’s began testing in mid-2016. For the full fiscal year, Kohl’s opened nine of the smallest format and closed 19 larger stores.
Executives on the company’s fourth quarter earnings call said they are refitting some larger stores in what they called a “standard to small program” so they are more profitable. Wesley McDonald, Kohl’s chief financial officer, said 115 stores are in the standard-to-small process and it will add 200 stores to the program. Stores are being remodeled to make more efficient use of space, and inventory levels are being “right-sized.”
“500 of our 1,150-some stores are going to be run like a smaller store,” McDonald said, according to an earnings call transcript from Seeking Alpha. Lower-volume, standard-size stores are being looked at first. Executives said the retailer is also considering closing some larger stores and opening smaller stores within the same market. Kohl’s further plans to reduce inventory 3% across all stores each year for the next three years.
“The result of all of these efforts is that we’ll achieve a rationalization of square footage over time, not necessarily fewer stores, but probably less square footage,” said CEO Kevin Mansell.
Competitor J.C. Penney Co. Inc., No. 33 in the Internet Retailer 2016 Top 500 Guide, announced last week it will close 140 underperforming stores this year—about 14% of its stores—as the retail chain seeks greater operational efficiency and develops its omnichannel capabilities. Target Corp. CEO Brian Cornell last fall talked up a “flex-format” model of smaller Target stores that can meet market needs and act as pickup points for online orders. Target, No. 22 in the Top 500, opened 23 such stores as of September and plans to open at least 16 this year.
Kohl’s total sales fell 2.8% in the fourth quarter and 2.7% for the year ended Jan. 28. It does not break out web sales but executives said online sales grew in the “low-teens” both for Q4 and the year. That’s a deceleration from a year ago, when Kohl’s web sales grew 30% in Q4 and 25% for the year. Kohl’s is No. 19 in the Top 500 based on an estimated $2.82 billion in 2015 web sales.
The retail chain said about one-third of goods ordered online were shipped from a store or picked up in a store during the fourth quarter; up from “almost 30%” a year earlier. Consumers accessing Kohl’s digital properties (site and apps) from mobile devices accounted for more than half of web traffic and about 30% of digital sales.
For the fiscal fourth quarter ended Jan. 28, Kohl’s reports:
- Net revenue of $6.205 billion, down 2.8% from $6.387 billion in Q4 2015.
- A comparable-store sales decline of 2.2%.
- Net income of $252 million, down 14.9% from $296 million.
For the fiscal 2016, Kohl’s reports:
- Net revenue of $18.686 billion, down 2.7% from $19.204 billion a year ago.
- A comparable-store sales decline of 2.4%
- Net income of $556 million, down 17.4% from $673 million.