Good tidings yet to roll in for US department stores

Washington: When Kohl’s was in a sales rut last year, company executives began rethinking the US department store chain’s strategy. Kohl’s unveiled the ‘Greatness Agenda’, bringing in a wider assortment of merchandise, putting a greater emphasis on national brands and developing a loyalty programme.

Despite these efforts, Kohl’s reported surprisingly weak quarterly earnings, raising new questions about whether its turnaround strategy is living up to its name. Kohl’s said that sales at stores open more than a year were essentially flat, up just 0.1 per cent. Its profit tumbled 44 per cent, to $130 million (Dh480 million), though that included the cost of getting rid of some debt. Excluding that cost, profit fell 9 per cent.

Executives blamed the weakness in sales on delays in some customers’ back-to-school shopping plans. Some US states moved their tax-free holidays from July into August, and Kohl’s says that may have delayed stock-up shopping trips for its value-conscious customers. Also, Labor Day falls relatively late this year, which may have also affected school calendars and the shopping cycle.

Indeed, a survey of consumers by the National Retail Federation found that, compared with last year, more shoppers plan to get a later start on purchasing back-to-school items.

Kohl’s went public in 1992 with less than 100 stores and went on a roughly 20-year expansion tear. Today, the Wisconsin-based retailer has 1,164 outposts. But now that its stores dot nearly every corner of the country, it must figure out a new way to increase sales by improving traffic to its shops and drawing more shoppers to its e-commerce business.

The retailer is pushing hard on both fronts: At its brick-and-mortar locations, it has invested in new beauty and cosmetics areas. It developed a new smartphone app and more personalised emails to improve its digital experience.

During a call with investors, chief executive Kevin Mansell and Chief Financial Officer Wesley McDonald repeatedly stressed that the company sees major potential to boost sales with its new ‘buy online, pick up in store’ programme. Kohl’s has been quietly rolling out the programme, and executives say that so far, they like what they are seeing: It has helped drive additional traffic to stores as well as 20-25 per cent “attachment sales” from customers who come into Kohl’s to pick up online orders and then buy more items in the store. They hope to see even stronger uptake of the programme when they start marketing it this fall.

Kohl’s said that it remains committed to its turnaround plan. But it said it will outline to investors an “evolution” of that strategy in October, an acknowledgment that the current approach needs revising. Kohl’s lackluster report came just one day after rival Macy’s announced similarly gloomy earnings. Macy’s blamed its results on caution among US consumers.

And yet the US Commerce Department reported that retail sales were up a healthy 0.6 per cent in July, with improvement coming from a variety of categories. Analysts took this as a sign that perhaps US consumers are finally starting to ramp up their spending after months of steady improvement in the economy. But department store sales remained weak, according to the report, with a 0.8 per cent decrease in July.

Meanwhile, upscale department store Nordstrom had a decidedly better quarter than its mid- and value-priced rivals. The chain announced that sales were up 4.9 per cent at stores open more than a year. In part, Nordstrom may look stronger simply because it caters to wealthier shoppers who were not as affected by the recession.

But Nordstrom also jumped into e-commerce innovations early, and its strength in this area has contributed meaningfully to sales growth.