Striking a balance between mass & fashion

With exciting new partnerships, continued opportunity for store growth and a welcoming, convenient store environment, Kohl’s has emerged as a major player in the mid-tier market. But the company isn’t stopping there: With exclusive lines from Vera Wang and the Food Network landing in stores this fall, and store expansion expected to reach 1,200 units by 2010, Kohl’s is setting the pace to dominate the more moderate market, and showing very few signs of weakness.

“We are very encouraged by Kohl’s underlying business trends, as the company has not seen any weakness in the consumer (unlike some other department store competitors),” said Deborah Weinswig, a senior retail analyst with Citigroup, in a report. “From a sales perspective, keener focus on fashion merchandise and recent brand introductions and expansions should help increase both traffic and ticket. [Increased] square footage will also help fuel top-line growth.”

Once associated with more dowdy discount apparel, Kohl’s has revamped and elevated its selection of apparel and home products over the last two to three years. The change began in earnest three years ago, when the company first introduced exclusive, trend-right products from former MTV television host Daisy Fuentes, as well as stylish career wear from its private label, Apt. 9. Also included was juniors’ apparel from Bongo and young men’s apparel from Urban Pipeline.

The company also launched its exclusive Beauty-Bank cosmetics line, manufactured by Estée Lauder, in 2004. The following year brought exclusive introductions of big name national brands such as Candie’s and Chaps, which over the years have expanded from their core in apparel and accessories to also include fragrance and soft home. Over the last year or so, Kohl’s has introduced an exclusive home line from Hispanic talk show host Cristina Saralegui, a young men’s and boys’ line from skateboarder Tony Hawk and a licensed contemporary women’s apparel line from ELLE magazine.

“For Kohl’s, there are four elements to success with regard to building an exclusive brand,” Weinswig said. “First, a world class partner; second, something that will resonate with the customer; third, something scaleable; and fourth, a brand they can expand across all businesses (i.e. apparel into home). We have been very impressed with the company’s ability to replicate this success in multiple exclusive brand launches.”

Kohl’s Manhattan design office, which opened in January, will give the retailer even more of a competitive edge, as it launches the Vera Wang and Food Network brands this fall, as well as in the future when it brings new exclusive brands into its fold. The 23,000 square-foot facility, located in the Garment District, employs a team of up to 30 designers and supports associates who communicate with the Vera Wang and Food Network offices already based in New York. The team will also be able to collect trends firsthand by attending New York’s Fashion Week, which takes place twice each year.

“We wanted to open a design office…so that we could be closer to Vera [Wang] and the Food Network,” said Peggy Eskenasi, evp of product development for Kohl’s, in a phone interview. “To maintain this relationship, it was a necessity that we have people…in New York communicating back to our home offices in Wisconsin.”

While Kohl’s is certainly narrowing its focus on fashion with the majority of its recent brand launches, it hasn’t forgotten about its loyal customers who may be more traditional and conservative when it comes to purchasing apparel and home items.

“We brought in the Chaps exclusive for more of that classic customer,” Eskenasi said. “What we’ve been trying to do with Vera [Wang], Food Network and all of our exclusive brands is to try to make Kohl’s a destination. If she wants Vera, she’ll come to us. If she wants Candie’s, she’ll come to us. And if she wants Chaps, or the Food Network, she’ll come to us. We’re creating alliances with world class brands that people know and recognize.”

Kohl’s has also been busy making its store environment a destination worth visiting. It introduced a new prototype in fall 2006, in Bradenton, Fla., and plans to continue building new stores with the enhanced features introduced.

These features include wider aisles, updated fitting rooms, way-finding signage and enhanced lifestyle graphics on signage throughout the store. By the end of this fiscal year, Kohl’s plans on opening 110 to 115 new stores using these enhancements.

In addition to building new, easy-to-navigate stores, revamping current stores is another part of Kohl’s growth strategy. At last count, more than 100 of Kohl’s 834 stores had been upgraded to reflect the latest prototype. Kohl’s renovated 29 stores before mid-May this year, and it plans to double that number next year.

Kohl’s is making sure that the stores they open and remodel are adaptable to each market. The mainstay of Kohl’s growth has been 88,000 square-foot, one-level format stores with a racetrack format. However, the company has also been introducing 68,000 square-foot, small-format stores (39 at last count in May) and now has four 133,000 square-foot, multilevel urban stores. All three of these formats will be part of the company’s continued growth plan, Kohl’s said.

Beyond Kohl’s welcoming store environment, and the company’s growing presence all over the country (Kohl’s has stores in 46 states), the company has also been successful because of its off-the-mall presence, which equates to consumer convenience, experts say.

“If you want to grow, you have to go off-mall,” said Howard Davidowitz, chairman of Davidowitz & Associates. “I think there are maybe a total of six malls planned to be built this year. Unless you’re taking over an old May Co. store space, there is simply no opportunity for growth.”

As a champion of the off-mall space, Kohl’s is poised for success, Davidowitz said. Consumers are pressed for time and the off-mall stores fit more easily into their weekly routine.