Kohl's sets expansion at 500 units by 2003 - expansion in store numbers - Brief Article - Statistical Data Included

DSN Retailing Today, June 10, 2002 by Mike Duff

MENOMONEE FALLS, WIS. -- Kohl's isn't being shy in trumpeting its accomplishments over the past decade since the company went public in 1992, declaring the pace of growth set thus far will remain torrid in the years ahead. Kohl's expansion plans should drive it beyond 500 stores some time in 2003.

At the company's annual meeting May 21, ceo Larry Montgomery noted the company's established expansion will continue in 2003 to include about 40 stores in the southwestern United States.

"As Kohl's celebrates 10 years as a public company, we are looking ahead to 2003 when we will establish Kohl's as a national retailer with a coast-to-coast presence. We will achieve that with the opening of new stores in Southern California in the spring, and additional stores in Phoenix and Las Vegas in the fall," Montgomery told attendees.

The possibilities of growth in Southern California are particularly exciting for Kohl's, he said two days later at an analyst meeting in Boston, noting the market includes more than 16 million people. In comparison, Dallas, where Kohl's operates 21 units, is home to something under five million people. The math speaks for itself

Daniel Barry, an analyst with Merrill Lynch, estimated that a substantial proportion of the southwestern growth will be in the Los Angeles area, stating in an investment note, "We estimate that it will be 25 to 30 stores."

Kohl's execs emphasized the strength of growth in the period between the IPO and the present at the Boston meeting.

Arlene Meier, coo, noted the company had promised 20% annual square footage growth when it discussed the IPO with the financial community a little more than 10 years earlier. The company had delivered 22% growth in those 10 years and 23% in the second five years of that decade.

Kohl's also promised 20% sales growth with 15% deriving from new stores and 5% from comparable store sales gains. Again, results have superseded these goals. Kohl's has delivered almost 24% sales growth over the past 10 years and 25.7% over the past five, with comps gaining 8.4% over the decade and 8.3% in the second half

"Obviously we've achieved our goal of continuing to take market share. Bottom line, what has been important is obviously taking market share profitably. The results show we clearly drove that top line to the bottom," Meier said.

In the last fiscal year ended Feb. 2, net income grew 33.2% to $495.7 million, or $1.45 per diluted share. Strong earnings continued in the first quarter of this year as net income grew 42.% to $106.6 million, or $0.31 per diluted share.

From a base of 76 stores in six Midwestern states when it advanced its IPO, Kohl's has expanded to 420 stores in 32 states, Montgomery noted.

Merchandising flexibility has helped Kohl's build appeal to consumers. The company has gotten out of electronics and furniture over the past decade and added new brands, including Columbia, which president Kevin Mansell noted became a top 10 label for the chain in the second year it was available.

A re-rollout of OshKosh was begun in the first quarter and has been "very successful," Mansell said. The vendor withdrew from the chain a few years ago to focus on department stores, then changed its mind a couple of years ago. Now, OshKosh has the potential of becoming a top 20 brand at Kohl's in its first full year in-store. Among other new product initiatives, Savane bottoms will be launched in August.

Private brands also have been expanded, but as a "strong complement to our national brand strategy," said Mansell, and now represents between 20% and 25% of the assortment. The company has emphasized adding quality to its private-label alternatives. A key item and table strategy, as well as characteristics of store design, have been used to make shopping more fun and more convenient. Positioning stores between demographically critical population groups and regional malls, Kohl's continues to drive customer convenience as a competitive advantage.

Kohl's added 62 units in 2001 and has kept up the store-opening pace this year. The company planned 70 new stores for 2002, with about 40 already opened. Among new markets, Kohl's already has breached Boston, Houston and Nashville. Later this year, new store openings will include the company's initial entry into Providence, R.I.

Kohl's is maintaining its traditional split with half of its stores opening in new markets and half in established markets.

Kohl's has laid the groundwork for expansion by broadening its system of distribution centers. Last year, it acquired its sixth distribution center from Montgomery Ward and now has the capacity to supply 550 stores. A seventh DC is under construction in San Bernadino, Calif., and should open by the end of this year.

However, new stores aren't the whole story. "We think it's very important and a big competitive advantage for use to keep our stores fresh and current," said Montgomery, thus remodels are critical to capital spending. Kohl's remodels units every seven or eight years.

Recently, Kohl's has begun trying to schedule remodels, where possible, on a market basis. Last year, Columbus, Ohio, was the first city where Kohl's basically remodeled the market. It then staged a grand re-opening backed with electronic and print media support. This year, Kohl's is targeting six stores in Chicago and three stores in other markets for remodels.