In face of slipping sales, Kohl's keeps moving merchants

DSN Retailing Today, April 19, 2004 by Emily Scardino

MENOMONEE FALLS, WIS. -- Kohl's new executive lineup is the latest part of its strategic game plan to improve results. The recent appointment of three evp/gmms quickly followed the departure of Rick Leto, former evp and gmm of apparel and accessories.

With the first quarter of 2004 already drawing to a close, Kohl's is taking active measures to put sales on a fast track. While many of its long-struggling competitors came in with positive March same-store sales, with the Smith Barney Broadlines Index increasing 6.8%, Kohl's experienced a 0.9% dip in comps. JCPenney, its closest competitor, experienced an 11.4% comp sales increase, versus a 5.5% dip last March, perhaps indicating that it is gaining back customers. Kohl's remains focused on putting growth on the upswing across its key merchandise categories after experiencing negative annual comps in its most recent fiscal year, ending a streak of positive results that lasted for more than a decade.

To this end, the company will now have three evp/gmms managing assortments instead of the previous two--all reporting directly to Mansell. Not one but two executives will fill Leto's shoes, overseeing apparel more closely than ever.

David J. Campisi is Kohl's new evp and gmm, women's apparel and accessories. Now, one executive is dedicated to overseeing women's--the largest portion of Kohl's mix, at 32.1% in 2003. It has also been one of Kohl's weaker merchandise categories, blamed for a decrease in gross margins in its 2003 annual report. Previously, Campisi spent eight years at Fred Meyer, a division of Kroger, where he served as senior vp of apparel and home. His 25 years of experience also include 12 years at May Department Stores' Meier & Frank division.

Charged with Leto's other former responsibilities, Donald A. Brennan is the new evp and gmm overseeing men's and children's. These categories respectively comprise approximately 19.0% and 13.5% of Kohl's mix, as of 2003. With Kohl's since 2001, Brennan was previously evp, merchandise planning and allocation, and before that was senior vp and gmm of men's and children's at Federated's Burdines division.

Managing yet another subdivision of the apparel category, Jack Moore will continue as evp and gram of home and footwear. Before he joined Kohl's in 1997, he worked for Target for almost 20 years.

In addition to these new appointments, the company also is seeking someone to fill the position of evp, merchandise planning and allocation, now vacant due to Brennan's promotion.

"We are taking the opportunity to add additional talent and to optimize our merchandising structure," said Kevin Mansell, president of Kohl's. "Specifically, we are dedicating more resources to provide additional focus on both branded and private brand merchandise categories."

Private brands in particular are increasingly critical to Kohl's future. While the company has long hawked national brands at low prices in its national advertising, there are an increasing number of retailers selling those labels. A case in point is Levi's. Kohl's now faces competition from Wal-Mart and Target, both of which retail the mass-market Levi-Strauss Signature brand, as well as other mid-tier retailers who sell Levi's Red Tab, including Sears and JCPenney.

Kohl's expects national brands to continue bringing in approximately 80% to 85% of sales and its growing number of private labels to constitute the remaining 20% to 25%. However, a new, more narrowly focused management strategy will provide what the company recently called "enhanced oversight to all private brand product development." This includes new brands within this category, including Daisy Fuentes in misses apparel and the exclusive new Laura Ashley line in home.

The new management team, along with new brands and merchandising efforts, will ideally help improve sales for next year. In light of recently soft financial results, however, a Fitch Ratings report affirmed Kohl's at an "A" bank credit facility rating. This "Negative Outlook" also reflects "uncertainty as to the company's ability to return to its historically strong sales growth pace," said Philip M. Zahn, CFA, Fitch Ratings.

Even though store expansion will continue at a double-digit rate for years to come, it is slowing as it creeps toward its inevitable saturation point. The 20% annual rate of expansion the company experienced in 2003 is expected to fall off to approximately 18.5% in 2004 and 15.5% in 2005, according to Fitch.

Analysts and Kohl's itself have noted that expansion into new markets, particularly the Southwest, presents challenges. The basic apparel that plays well in Midwestern markets is far different from the breezy SKUs that fit the California lifestyle. While new brands, including Liz Claiborne's Axcess and Daisy Fuentes, have been put in place to add fashion to assortments, fine-tuning regional assortments in the all-important misses category is particularly vital. This is, again, why the company has charged an executive with the specific task of overseeing its largest merchandise category.