Michelle Gass’ Master Plan at Kohl’s Starts to Click Into Place

Michelle Gass — pressured by an activist assault, COVID-19 and rapid retail evolution — is pressing ahead with her master plan to reinvigorate Kohl’s Corp. 

And the pieces are starting to come together for the chief executive officer. Kohl’s put a tough 2020 into the books on Tuesday, logging a sales decline of 20.1 percent for the year, but said it is expecting sales to bounce back, rising by a percentage in the mid-teens this year. 

As Kohl’s starts to come out of the retail coronavirus funk that has hit the industry hard, a different company is emerging. Most importantly, Kohl’s is adding Sephora shops that are intended to draw customers to a reworked and more aspirational women’s business, which will soon include looks from Calvin Klein.

The key question now might be: Is that enough change? 

Activist investors Macellum Advisors, Ancora Holdings Inc., Legion Partners Asset Management and 4010 Capital, which together control 9.5 percent of the company, are pushing for greater change, including more aggressive real estate sales. They have supported an alternative slate of directors at the company’s annual meeting, in effect trying to stage a coup.

Gass told WWD on Tuesday that, “We have attempted to have constructive conversations” with the activists. “We like to find common ground.” 

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But the talks weren’t enough. The activists previously said Kohl’s offered up two board seats, but that they rejected the offer as insufficient. Now the fight to swap out the board is on. 

The pressure comes just as the pieces of the strategic puzzle come together at Kohl’s. 

“I think about Kohl’s and it’s about driving relevance in people’s everyday lives,” Gass said. “Everything we’re doing right now is connected back to that strategy.”

That includes a bigger push in active and casual looks and big changes in the women’s apparel offering, where many brands have been eliminated and the assortment has been focused. In the fall, Kohl’s will start selling Calvin Klein men’s underwear, women’s intimates and loungewear in over 600 stores. The brand joins Nike, Under Armour, Adidas, Champion, Columbia and others. 

All of these changes link back to the larger strategy and will be reinforced by the addition of Sephora, which will be introduced to Kohl’s website on Aug. 1 and will be quickly added to its first 200 stores. 

“Sephora is a game changer for us,” Gass said. “As we work more and more on it, we just continue to see more opportunities. 

“The opportunity around the women’s [apparel] piece is that we should expect to see a halo effect,” the CEO said. “We’re going to be reaching customers who don’t have a Sephora nearby.”

Kohl’s has been aggressively trying to bring fresh faces into its stores. 

The company accepts Amazon returns in its stores — a controversial partnership with a much-larger competitor that has nonetheless brought in new shoppers. The Amazon program brought in at least 2 million new unique customers to Kohls’ last year and one-third of them are Millennials, the company said. 

Increasingly, those new customers will be seeing something new from Kohl’s. 

“Take Calvin Klein, we are going to build in these 200 stores an expanded experience of CK that’s going to be adjacent to the Sephora experience,” Gass said.

She’s taking the opportunity to “reflow all our categories” to optimize while “downsizing other categories like jewelry and accessories.”

And the changes are expected to continue.

“There’s more coming,” she said. “We’re going to have a tightly curated brand portfolio. We are elevating and transforming our brand portfolio to fulfill our new vision. Everything will be fully connected. The Kohl’s store will have all the great things you love about Kohl’s warm, inviting experience, but then we’ll be even more aspirational.”

For now, investors are still in wait-and-see mode even as Kohl’s — in a move that signals a return to something more like normal — said it would boost its capital expenditures and reinstate its dividend and share repurchase programs after a very long year.

Kohl’s shares shot up when the activist group made its move last week. But the stock was up just another 1.4 percent to $57.82 on Tuesday as investors reacted to fourth-quarter results. 

Net income rose 29.4 percent for the quarter to $343 million, or $2.20 a diluted share, from $265 million, or $1.72, a year earlier. Results came out better than Wall Street projected, with adjusted earnings of $2.22 a share 21 cents ahead of the $2.01 analysts had penciled in.

Sales for the three months ended Jan. 30 slipped 10.1 percent to $6.1 billion from $6.8 billion. 

For all of 2020, Kohl’s saw a net loss of $163 million, or $1.06 a diluted share, which compared with 2019 earnings of $691 million, or $4.37 a share. Revenues fell 20.1 percent to $16 billion from $20 billion. 

The activists maintain that Kohl’s had stagnated well before the stresses of last year, noting that 2019 sales of $18.9 billion were only $100 million higher than sales in 2011.

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