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KOHL’S COTINUES EXPANSION DESPITE RETAIL SLOWDOWN

By Edmund Mander

If the country is in the midst of a retail slowdown, somebody has forgotten to tell Kohl’s Corp.

While other retailers are curbing their appetites for expansion, Kohl’s is expanding like there’s no recession tomorrow. By March of this year, the Wisconsin-based low-priced department store chain, which operated 260 stores at the beginning of 2000, had grown to 338 stores in 27 states, and entered the Atlanta market with 15 stores. It plans to open a total of about 60 stores this year, according to company spokeswoman Susan Henderson, and, besides entering Georgia, the chain also is establishing a presence in Arkansas, home of Wal-Mart.

There is nothing light-footed about its conquest of new markets either: It stormed the Northeast last year by buying 32 bankrupt Caldor locations in New York, New Jersey, Connecticut and one in Maryland, and has since opened several more in the region.

To analysts, developers and shoppers alike, Kohl’s is a bright shining light on an otherwise bleak retail horizon.

"It’s the one real open-ended growth story in this area of retail," said Richard Church, an analyst at New York City-based Salomon Smith Barney, adding that Kohl’s — still unknown in many parts of the country — will in a few years be a household name in every state in the union.

Kohl’s seemed especially unstoppable early this year, when February sales figures revealed trouble at other stores. While many other department stores sold less in February this year than the same month last year, Kohl’s posted a 7.3% same-store sales increase. Some other discount retailers, including Costco, Wal-Mart and Kmart, also did well, with shoppers striving to save money as the economy falters.

However, the picture changed markedly when March sales figures were released, showing Kohl’s sales down 1.9%. But, according to analysts, the store’s surprising dip said a lot more about the economy than about the retailer itself.

Church praises Kohl’s strategy, which he says contains three critical elements: famous brands, affordable prices and a well-designed shopping environment.

About 80% of its merchandise consists of nationally known name brands, such as Nike, Levi’s, Polo Ralph Lauren and Reebok, offered at low prices.

"Their value message resonates clearly with the customer," Church said, especially in this time of economic uncertainty.

The merchandise is arranged clearly, too: Items are spaced out, and close attention is paid to the height of displays and the mixture of colors. Sight lines are unobstructed, and the stores are easy to navigate. Their average size is 86,000 square feet — most department stores are twice that — and they have a racetrack layout that allows shoppers to go from department to department easily and quickly. Most of the stores are on one level, and aisles are wide and unobstructed, allowing the easy passage of shopping carts.

When shoppers are ready to pay, they go to a centralized bank of registers, much like at a supermarket, which not only is efficient but also underscores a sense of the stores’ mass-market affordability, said Montclair, N.J.-based retail analyst Kurt Barnard, president of Barnard’s Retail Trend Report. Despite its low prices, though, Kohl’s does not scrimp on customer service. Staff stock shelves at nighttime, freeing the day shift to attend to customers — although each afternoon at 2 p.m. every staff member, including top managers and secretaries, is called to the shop floor to straighten up merchandise displays.

"They present themselves very beautifully," he said, citing the store’s exciting assortment of brightly colored merchandise. "They create an exceedingly pleasing shopping experience."

This has gone down particularly well in the Northeast, where shoppers are used to a more frenetic pace, opined Barry Davis, president of New York City-based Sun Management Corp., which buys and operates retail properties. Kohl’s offers a relaxed, Midwestern approach to retailing, he said. "It makes you feel welcome, and it’s also very refreshing."

Kohl’s does not regard itself as a competitor with other discount stores, such as Target and Wal-Mart, Stephen W. Smith, Kohl’s director of real estate, told a roomful of shopping center executives at ICSC’s New York Idea Exchange last year, as the chain prepared to roll across the border into the Northeast. "We’re competing against Sears, Federated, May, Dillard’s and Penney."

And competing rather well, judging by the numbers. It achieves sales of $279 a square foot, compared with $220 at Marshall Fields, $192 at May Department Stores Co. and $147 at Dillard’s, according to a recent report in The Wall Street Journal.

"The locations they have with us do phenomenally well," said Scott Schroder, director of marketing at Developers Diversified Realty, the Cleveland, Ohio-based REIT, which has Kohl’s department stores at 15 of its centers. "It’s a store we like doing business with."

Now that it has Georgia and Arkansas under its belt, Kohl’s has not announced its next regional target — the company is closemouthed about its strategy and intentions, especially with the trade press. But, according to Barnard, it is eyeing the West Coast. And when Kohl’s does go there, it will arrive in D-day style, opening numerous stores simultaneously, much as it did in the East. Doing so keeps the opposition off balance, Barnard observed.

"I think they want to pre-empt all possible sites before others imitate them," he said.

One of the most beautiful things about Kohl’s from an analyst’s point of view is that while the chain is expanding at a fast clip, it is not about to saturate the market any time soon, observed Salomon Smith Barney’s Church. "They’ve barely penetrated 25% of the prime markets," he said.

Neither does the retailer have to worry about losing all its shoppers when the economy rebounds, according to Barnard.

"They have a very, very exciting and a very, very successful concept," he said. "Kohl’s does not depend on uncertain economic times."

Its main concern, Smith said, is to inform consumers what it is — and what it isn’t.

"We’re not Caldor," he told attendees at ICSC’s New York Idea Exchange last year. "I’ll bet half of you here think we’re a discounter. Outside the Midwest and the financial community, few people really know who we are."

They are finding out fast now, however.

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