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Kohl's measures up to dept. stores

New York — Industry observers may see Kohl's as the contender with potential to menace specialty stores, department stores and discounters alike, but the retailer measures its phenomenal progress differently. Kohl's in-house list of prime targets consists of department store players, and it is the channel's leading retailers against which the Menomonee Falls, WI, powerhouse is benchmarking itself these days.

Speaking here at last week's Lehman Brothers Equity Research Retail Seminar, coo Arlene Meier directed investors' attention to a roster that included Federated Department Stores, May Co., Mervyn's, Dillard's and JCPenney — and compared their 2001 performance against Kohl's showy 33 percent earnings gain and 27.8 percent jump in EPS.

"These are our direct competitors who we're taking share from on a day-by-day basis," Meier said.

Those competitors also happen to be in no position fiscally to match Kohl's formula of 20 percent annual square footage growth. Since it went public in May 1992, the chain has ballooned from a Midwestern regional with 76 stores to a 382-unit growth vehicle in hot pursuit of new markets -which account for 50 percent of its yearly openings.

Doors in new markets are generating annual revenues of $14.7 million to $15.8 million - roughly 70 percent to 80 percent of the chain's average store sales volume of $21 million, Meier told investors. New fill-in stores in existing markets churn slightly more, $15.8 million. Once those stores anniversary, they produce annual comp increases of 10 percent to 15 percent for up to roughly four years before settling down to the mature-store comp level of 5.6 percent.

Kohl's is pursuing brand growth just as assiduously, Meier said, noting that brands constitute 75 percent to 80 percent of sales, which in 2001 reached $7.5 billion. The company's top 50 brands contribute more than 50 percent of revenues. And the top 10 brands - a group that includes Fieldcrest - collectively provide 20 percent of the chain's sales volume.

Its key item program, which is marketed and signed as "Get It!," is now expanding from its private label base into name brands. By fall, brand participation should account for up to 80 percent of sales volume in the program, Meier said.

Kohl's will face its newest branding challenge when it enters California in spring 2003 with an as-yet-undisclosed number of units in Los Angeles. It will mark the company's inaugural penetration into a heavily Hispanic market, and Kohl's has been using its relatively new El Paso, TX, store to gauge its targeted merchandising efforts.

"We're finding it's not the assortments that need to change so much," Meier said following her presentation. "It's the colors and the sizes within the assortments that need adjusting."

To further prepare for its move west, Kohl's hired its California regional manager last fall so that he could work through holiday 2002 and the spring market entries into Boston and Houston, Meier said.

"Now we're bringing on the district managers so they can learn through the year before the Southwest entry," she said.

The company also has begun construction on a distribution center in San Bernadino, CA, the seventh in its DC network.

"As we grow, we take share not only from department stores, but from specialty guys and discounters as well," Meier said.

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