The Amazon effect helps Kohl’s Corp help itself

Look at some of the headline numbers in Kohl’s Corp.’s second-quarter earnings report, and you’d surmise that things are pretty grim for the department-store chain. Look at the text of the press release, though, and you’ll find bread crumbs of information that suggest it is turning the corner on its near-term problems.
Kohl’s comparable sales fell 2.9 percent from a year earlier. That’s a worse result than analysts had estimated — and their views of how the quarter would shape up had already darkened significantly after the retailer slashed its annual guidance back in May following a rough first quarter.
On top of that, gross margin in the second quarter slipped to 38.8 percent from 39.5 percent a year earlier, likely reflecting efforts to be more competitively priced in its home-goods department after struggling in that area earlier this year.
Yet other details from Kohl’s results don’t paint such a gloomy picture. The company said comparable sales turned positive near the end of the quarter, rising 1 percent from a year earlier in the last six weeks of the period. CEO Michelle Gass also noted in the press release that improvement has continued into the early part of the third quarter, with back-to-school shopping off
to an upbeat start.
Importantly, Kohl’s — unlike some of its competitors promising an imminent turn in momentum — has offered a plausible list of catalysts for continued progress. The company is adding several prominent brands to its lineup, including shoe label Nine West and an exclusive home-goods line from HGTV stars Drew and Jonathan Scott. It will also sell Elizabeth and James, a trendy clothing label by Mary-Kate and Ashley Olsen. By beefing up both its selection of familiar national brands as well as exclusive goods shoppers can’t get anywhere else, it is taking concrete steps to improve its merchandise selection.
It helps, too, that it has a new tactic for getting more shoppers to see those goods in the first place: Its recently-launched partnership with Amazon.com Inc.
In July, the retailers rolled out nationwide a program in which Kohl’s brick-and-mortar stores accept customers’ returns of Amazon purchases.
The Amazon returns program is a far more promising driver of visits from new customers than anything Macy’s has put forward. Also, while both retailers have embraced a strategy of becoming more productive by shrinking certain store locations rather than closing them, I currently have more confidence in Kohl’s ability to make that approach successful. Kohl’s has more physical locations overall, but they’re largely in strip centers, not in enclosed malls that are structurally challenged. I suspect that makes it easier for Kohl’s to find ways to monetise that unneeded space, something it is already doing with arrangements with the likes of Aldi and Planet Fitness.
Like all department stores, Kohl’s still has much to do to prove it can thrive, not just survive, in today’s retail environment. A significant improvement in comparable sales in the third quarter — which now seems likely — would be a step in that direction.

—Bloomberg