Elgin Area Chamber Of Commerce: Kohl's Looks To Roll Out Small-Format Stores, Joining Several Fellow Retailers

Press release from the Elgin Area Chamber of Commerce:

March 08, 2022

Kohl's, under siege by several activist investor groups, plans to open 100 small-format stores as it looks to expand its physical footprint, a route that a number of other retailers have taken.

The Menomonee, Wisconsin-based company, which now has about 1,150 brick-and-mortar retail locations, on Monday also said it aims to see sales from its store-in-store Sephora beauty shops rise to $2 billion. Kohl's reiterated its plan to have a minimum of 850 of those Sephora-branded shops opened in its stores by 2023 through that partnership, with 200 already debuting last year.

"Make no mistake, this is a transformation," Kohl's CEO Michelle Gass said during the retailer's annual "Investor Day" presentation.

Kohl's piloted its small-format store in the Seattle area and expects the rollout to include typical sizes of about 80,000 square feet.

Several dissident investors — including Sycamore Partners, Macellum Advisors and Oak Street Real Estate Capital — in recent weeks have either made offers to acquire the chain or called for it to make major changes, such as looking for a buyer or divesting its real estate. Kohl's rejected those offers, and now Gass has outlined what she said is the company's plan for success. A cornerstone of the strategy is Kohl's continued belief and reliance on its stores, which not only sell goods but act as distribution points for online orders.

As part of its plan to extend its reach and as a revenue opportunity, Kohl's — like retailers Macy's, Burlington Stores and Target — plans to open small stores. In Kohl's case, the company said it is expanding a successful pilot of its 35,000-square-foot format, which is serving as the model for the 100 small-format stores it plans to open in smaller markets.

"The smaller-format store give us greater real estate flexibility, and the opportunity to go into markets and neighborhoods that couldn't support a full-sized Kohl's," Gass said. "So between the smaller-format stores and a few key market openings, we are confident that we can successfully open a hundred Kohl's stores in the next four years."

The company said it sees a $500 million-plus sales opportunity with the new format, with a 15% targeted return on investment.

Chuck Lanyard, president of The Goldstein Group, told CoStar News he expects more and more retailers to open small-format stores.

"They don't want to give up their presence of bricks-and-mortar and the convenience of people coming," he said. "But at the same time, they don't need to carry the huge overhead of a 100,000, 200,000-square-foot full-blown department store."

The Sephora shops are bringing not only younger but new customers to Kohl's, with 25% new to the chain, according to company officials. But they have not disclosed how much revenue those in-store beauty shops, which are 2,500 square feet, are generating now.

When it builds out the space for the Sephora shops Kohl's is also refreshing the rest of the interiors of those stores, Gass said. That is all part of the chain's effort to create a "a new modernized experience" for shoppers, according to the CEO. Kohl's is also testing localizing the inventory at its stores, with a test in Seattle, more closely tailoring its offerings to the region where the retail site is.

Kohl's anticipates sales growth in the low-single-digit range, according to Gass.

Overall, Kohl's is pivoting from being a department store chain to being "a focused lifestyle concept." The retailer is expanding its assortment of active wear and casual clothes as Americans became accustomed to wearing less formal apparel during the height of the pandemic.

Source: www.CoStar.com

This press release was produced by the Elgin Area Chamber of Commerce. The views expressed here are the author’s own.