Kohl's Facing Profit Decline

By Thursday Review staff | published May 28, 2014 |

 

Retail giant Kohl’s is reporting that it has had a particularly bad winter and spring, and now says its earnings will not meet expectations.

Like many retailers, a combination of factors may have played a role in Kohl’s sales decline. For one, the Target data breach, revealed last December, sent shockwaves into the market at the peak of the holiday shopping season. Target felt the impact the most, but other retailers also experienced blowback as many consumers withheld the use of credit cards and debit cards in December. Like many retailers, Kohl’s saw its sales decline substantially through the end of the Christmas buying cycle.

But more impactful was the harsh winter, a long season of prolonged cold and extreme weather conditions which caused millions of potential shoppers to stay at home and shop online instead. Like many big retailers, Kohl’s saw a huge decline in customer foot traffic during January, February and even into early March. (Conversely, Amazon saw its numbers increase during the same period).

Kohl’s saw its sales decline by about 3% overall (as compared to the same period last year), and its profits slipped by a whopping 15%. Kohl’s, like J.C. Penney, K-Mart and other traditional retailers, has struggled to keep customers coming in its doors as more Americans shop online, and as millions seek bargains in an economy still stressed by the effects of a long recession.

Many economists had predicted that the severity of winter would have a negative multiplier effect for many months—inhibiting consumer spending as Americans felt the sting of hefty energy bills, and as housing and home construction moved sluggishly to regain footing.

Kohl’s may have also suffered from poor management of its product line, substituting some of its in-house brands with more name-brand merchandise, especially in the clothing line. Like J.C. Penney and its troubled recent past, this tinkering with brand identity drove some Kohl’s customers away in search of middle-brow pricing and bargain products elsewhere.

But in the end, Kohl’s may be facing the same identity crisis which now affects hundreds of major retailers, from Home Depot to Sears, from Family Dollar to Target to Radio Shack: consumer spending patterns are changing dramatically as online shopping becomes more secure, increasingly flexible and in many cases more affordable than a drive to the shopping center or mall.

Despite the poor numbers, Kohl’s top execs remain optimistic that customers will return to stores in large numbers as Americans venture back from deep recession.

Kohl’s is headquartered in Menomonee Falls, Wisconsin and employs roughly 40 thousand employees, and operates 1158 stores in the U.S. and Canada. Though Kohl’s has fewer stores than superstore giants Wal-Mart and Target, Kohl’s surpassed arch-rival J.C. Penney in 2012 to become the largest traditional department store chain in the U.S.

Related Thursday Review articles:

Target is Off Target; Thursday Review; May 21, 2014.

Home Depot Still Feeling Chill of Winter; Thursday Review; May 20, 2014.