Kohl’s Promotes Value to Middle-Income Consumers Buffeted by Inflation

Kohl’s is looking to boost its sagging sales by promoting value to consumers who have been buffeted by high interest rates and inflation.

During the quarter ended May 4, the retailer’s net sales decreased 5.3% year-over-year and its comparable sales declined 4.4%, according to a Thursday (May 30) earnings release. Kohl’s attributed the drop in part to a reduction in clearance sales, which more than offset an increase in regular price sales.

“As it relates to the consumer backdrop, our customers continue to be pressured by a number of economic factors, including high interest rates and inflation,” Kohl’s CEO Tom Kingsbury said Thursday during the company’s quarterly earnings call. “While spending among our high-income consumers has remained steady, our middle-income consumer continues to be impacted.”

In an effort to boost its sales, Kohl’s is working to “accelerate and simplify” its value strategies, according to a presentation released Thursday. It aims to do so by increasing its targeted offers and timely clearance events, offering more competitive and consistent pricing, expanding its co-brand credit card and leveraging its loyalty program.

“In this environment, we are working hard to deliver even more value, recognizing that the discretionary spend of our customers is pressured,” Kingsbury said during the call.

Kohl’s is also working to expand its sales through partnerships and new product offerings, some of which aim to draw younger consumers.

The company’s partnership with beauty retailer Sephora continued to be a bright spot for Kohl’s, with first-quarter sales up 60% and comparable sales up 20%, according to the presentation. Kohl’s now has Sephora at more than 900 of its 1,176 stores and expects to have 1,000 by the end of 2024.

“Sephora continues to be an important driver of our new customer acquisition,” Kingsbury said during the call. “We are also continuing to attract a younger, more diverse customer who shops more frequently as we have expanded Sephora across our store base.”

Kohl’s also reported early success in underpenetrated categories, including home decor, pet, gifting and impulse, per the presentation. During the first quarter, it saw “incremental sales” from its expanded assortments in home decor and pet, a 30% increase in gifting sales, and 60% growth in impulse sales driven by its introduction of queuing lines in 100 stores. The company sees more than $2 billion in incremental sales opportunity in these new categories.

The company will soon launch a partnership with Babies “R” Us. During the third quarter, Kohl’s will add about 200 in-store baby shops and expand its online offering of baby gear, the presentation said.

“Baby gear is a large category that has seen disruption in the competitive landscape in recent years,” Kingsbury said during the call. “Kohl’s new commitment to this space represents a significant growth opportunity and broadens our reach for the younger customers.”

Looking ahead, for the full year 2024, Kohl’s expects its net sales to decrease between 2% and 4% and its comparable sales to decrease between 1% and 3%, according to the earnings release.

“We are approaching our financial outlook for the year more conservatively given the first quarter underperformance and the ongoing uncertainty in the consumer environment,” Kingsbury said in the release.