Kohl's Home Lines Providing a Lift

James Mammarella, October 15, 2010

NEW YORK - "Spectacular" was what Kevin Mansell, chairman, president and ceo of Kohl's Corp. told HTT, when asked how soft home has been performing this year. He had already told financial analysts at the Goldman Sachs 2010 Global Retailing Conference earlier this month that footwear and home have been leading the retailer's overall 5.6% year-to-date comp store sales growth.
     "Our footwear and our home business have been leading the company," Mansell said.
     Kohl's has concentrated in 2010 on driving store visits -- transactions are up more than 8% for the year -- and making "significant" progress on increasing merchandise margins. The result: "exceeding our profit goals," he stated. And pursuant to that, investors and potential investors have become louder in demanding Kohl's loosen its hold on cash. Mansell confirmed the company is moving to resume the existing, authorized share buyback program, which has $1.9 billion in unused capacity, and Kohl's seems to be leaning toward starting a dividend program.
     Capital allocations will also flow into a stepped up remodeling program in 2011 -- as many as 100 units, up from 60 last year and about 85 this year -- and adding as many as 30 new units to the 1,089-store chain. The company plans to mostly hold the line on marketing and media expense; Mansell pointed to very strong results at the same time Kohl's trimmed more than $40 million from its media budget last year.
     The company has had success with some social media campaigns - notably its summer Facebook event to award $500,000 apiece to 20 schools with the most Kohl's Facebook friends; this ploy has expanded Kohl's "friends" from a base of one million to more than 2.6 million, which Mansell said the retailer plans to "engage."
     Still, Kohl's gets more productivity out of its "old-school" preprinted advertising circulars than any other media format, he noted. And that vehicle is aimed precisely at a consumer that is reluctant to spend freely -- but avid about spending when the price-value-style equation is right.
     "The consumer is still very constrained and very focused around achieving great value," Mansell said.
     Expanding revenues would solve a variety of challenges in Kohl's operational metrics. "How do we get back to that 11% to 12% operating margin?" Mansell posed the question - - then answered by noting that for most of the retailer's life as a public company, Kohl's has been "north of $250 per square foot" in sales, while the measure in 2010 is about $217 per square foot. Achieving the range of $240 to $250 would leverage investments the mid-tier merchandiser has made in customer service, in its online platform and fulfillment support, and in product development and the acquisition of new brands -- a new one of which will be unveiled in the near term.
     In response to a question about the impact of cost inflation on soft home product lines, Mansell said the range has been "very broad - but way more than 3% to 5%" depending on the particular fabrication and country of origin. "These products are almost all machine-made," he said, so factors such as cotton prices and the transport of the relatively heavy goods become an "enormous" part of the end cost. He reiterated that during 2010, upward price pressure on home textiles has been "significantly more than the three-to-five percent" range.

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