What Can Business Owners Learn as Kohl’s Attempts a Turnaround?

Department store retail chain Kohl’s announced its first quarter earnings late in May. After multiple quarters of sinking stock prices and disappointing sales, they reported a surprise profit. Though Kohl’s is still expecting a net decline in sales, its latest earnings report has some investors hopeful the chain can slowly make a comeback.

Kohl’s has been under intense pressure from activist investors since last year. Previous CEO Michelle Gass stepped down from her role last November, transitioning to Levi Strauss, with Tom Kingsbury – previous CEO and president of Burlington – assuming her position.

Key Takeaways

• Most department store retailers have suffered since the advent of online shopping. Kohl’s is no exception, and consumer behavior changes due to inflation have further compounded worrying sales numbers.
• Discount retailers like T.J. Maxx have seen remarkable recoveries since the initial pandemic hit, but Kohl’s has not done the same.
• Kohl’s reported stronger-than-expected first-quarter sales leading the company’s stock price to jump briefly.

Kohl’s Performance in 2022

Kohl’s often gets lumped into the same category as discount retailers like T.J. Maxx. But anyone who’s ever shopped inside knows that Kohl’s isn’t quite the same.

Kohl’s has a fantastic clearance section where you can find treasures for just a few bucks. But outside of the clearance section, Kohl’s has a reputation for having clothes at a higher average price point, surrounded by messaging for huge discounts.

When you shop at Kohl’s, the most disciplined shoppers might walk out with only clearance buys, but most people will also buy items with higher price tags.

Given this context, it’s easier to see why Kohl’s hasn’t had the same pandemic recovery trajectory as stores like T.J. Maxx, where customers are likelier to go if they don’t want to spend more. As inflation has ballooned, most consumers are trying to cut spending everywhere they can.

Stock price

If we did want to compare the companies, looking at stock values over the last five years, T.J. Maxx’s chart looks like an inverted version of Kohl’s chart.

On Nov. 24, 2017, T.J. Maxx stock (TJX) stood at $35.44. It gradually doubled in value over the next couple of years, hitting a peak of $63.38 on Valentine’s Day of 2020. As with most companies, it took a nose dive as COVID shut down parts of the country, down to $37.37 on March 20, 2020.

It’s been a bumpy but upwards ride since then, with the stock rising above $75 in May 2023.

On the other hand, Kohl’s (KSS) hit a pre-pandemic peak of $81.97 on Nov. 9, 2018. It then tumbled when the pandemic hit to $11.51 on April 3, 2020. It barely rose until December 2020, when it shot up and mostly continued to climb until May 6, 2022, when it became clear the company had a disappointing first quarter, and subsequently, a potential acquisition fell through.

KSS hasn’t totally recovered since – it’s sitting at $19.67 as of May 25, 2023, even after experiencing a minuscule rise after releasing its latest earnings report.

Michelle Gass Leaves Kohl’s

Michelle Gass joined the team at Kohl’s in 2013 as its first chief customer officer. In 2015, she became the chief merchandising officer before taking over as CEO in 2018. Gass had previously spent nearly 17 years with the coffee giant Starbucks.

While Gass was instrumental in growing the partnership between Kohl’s and Sephora, she was also criticized for struggling to boost sales for the company. Before Gass stepped down in November 2022, activist investors had requested board changes at Kohl’s for about two years. Ancora and Macellum Advisors regularly pushed for a management shake-up.

Widespread inflation heavily damaged Kohl’s sales as the chain caters primarily to middle-income consumers. This undoubtedly put pressure on Gass in the months leading up to her resignation, as did her choice to end talks with Franchise Groups – owner of The Vitamin Shoppe – about a potential acquisition.

Gass stepped down in November to take a position at Levi Strauss. Tom Kingsbury, the previous CEO of Burlington, took over her role. The change in leadership led to a brief rise in stock price for Kohl’s, but the stock has trended downward in the first half of 2023.

Disappointing Holiday Sales

In March 2023, Kohl’s reported disappointing holiday sales from the fourth quarter of 2022. Net sales were down 7% in the holiday quarter, and the company shared a weak outlook for 2023, anticipating a decline in sales between 2% and 4%.

Kingsbury tried to stress the growth of Sephora locations in Kohl’s stores during the earnings call but also admitted that he thought the company could do better. A positive sign for the company was the waning of inflationary pressures. With the latest Consumer Price Index numbers coming in under 5%, consumers are more likely to spend money on discretionary items like clothing that Kohl’s provides.

Another persistent problem for Kohl’s is…