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CEO Talks: Kohl’s Michelle Gass Makes Waves

The leader of the Menomonee Falls, Wis.-based retailer is creating a culture of creativity, hoping it will lead to innovation, and, ultimately, market share gains.

When Kevin Mansell retired in May as Kohl’s Corp.‘s Chairman and Chief Executive Officer, Michelle Gass moved seamlessly into the c-suite from her role as chief merchandising and customer officer. After all, in that role she had helped develop the transformation plan for the retailer that came to be known internally as the Greatness Agenda, so she was well aware of Kohl’s problems as well as its potential. What’s more, as Mansell’s heir apparent, Gass in September was named ceo-elect and had eight months to acclimate before Mansell stepped down.

But Gass also quickly moved to put her own stamp on the mass department store retailer. Early in her tenure she named a new chief merchant, drastically amplified the activewear assortment, and surprised the retail industry by sleeping with the enemy — Amazon.

Kohl’s under Gass’ leadership has become more nimble. In search of Millennial consumers, the retailer hooked up with media platform PopSugar, which has a global audience of more than 100 million women, and created an apparel collection that leverages PopSugar’s propriety data analytics. PopSugar for Kohl’s is part of the retailer’s speed initiative, which reduced production timelines by about 40 percent, taking months out of the process.

Gass joined Kohl’s in 2013 as chief customer officer overseeing marketing and e-commerce, from Starbucks, where she expanded the coffeemaker’s frappuccino business from two flavors into a full-blown product line and elevated the rewards program. She was promoted in 2015 to chief merchandising and customer officer, adding also the planning and product development divisions. “I arrived at a pretty pivotal time with lots of pressures,” she said. “There were new competitive entrants nipping at our heels. The biggest disruptive force was digital transformation. In some ways,we were a little behind.”

The retailer has rushed to catch up, with investments in“technologies such as data machine-based learning and AI inventory management,where there’s been lots of progress,” Gass said. “Having a tech team in Milwaukee and an office in Silicon Valley working to elevate the online and mobile the experiences, omni channel and fulfillment, is an advantage.” It’s also inspired a new high-tech Service Center concept being piloted at two stores.

Gass continues to look outside the traditional retail “box” for ideas. Earlier this week, Kohl’s revealed a strategic collaboration with WW,the new Weight Watchers global wellness company, which will feature some firsts for both companies.

But at a time when consumers are rewriting the rules of engagement by the minute, retail experts have said that Kohl’s will be challenged like others in the sector, from J.C. Penney Co. Inc. to Neiman Marcus Group, simply because it’s not small and nimble like some digital-native brands or large and crushing like Amazon.

Here, Gass talks about competition, serving the middle, new technologies and how to implement disruption.

WWD: Which companies do you consider to be Kohl’s biggest competitors?

Michelle Gass: The way I think about competition is that we compete with practically everyone. The lines have blurred across brands, retailers and certainly channels. I was thinking that for me, the customer has the answers. We can’t get overly distracted by what others are doing.

WWD: Why is Kohl’s proposition different from those of other retailers?

M.G.: We’re certainly unique. We’re positioned so differently. We go against the competitive [grain]. The whole idea of location relative to traditional department stores is different because we’re located off the mall. We drive home the notion of ease and convenience.Digital has put the world at the customer’s fingertips. I say that I want things to be strategically surprising. We really take advantage of all the data we have and being true to the customer. We’re making all the bold, unexpected,disruptive moves we can make to keep the customer interested.

WWD: What’s an example of a bold and disruptive initiative?

M.G.: Amazon has gotten a lot of attention. I say, there’s a “small” brand with shops in 30 Kohl’s stores. We’re testing Amazon returns in 100 stores. The opportunity is that 85 percent of the U.S.population lives within a 15-mile proximity of a Kohl’s store. It’s the idea of easy returns. We’ll pack and ship Amazon returns for free, and we incentivize the customer with a discount offer. Partnering with Amazon is intriguing. We have a great relationship with Amazon. We’re still in the pilot phase. We know we’re driving people into the stores. Great brands have huge reach. I’m more excited about breaking open a new way to work with an organization.

WWD: In what other ways is Kohl’s disrupting?

M.G.: We’re experimenting with the active pad in 30 stores where we have made it 40 percent larger. We’re testing even a more expanded active footprint that’s 25 percent of the floor space at Kohl’s — a very big idea.

We’ve also talked about creating a unique concept that we own that is ours, and that maybe the customer won’t even know it’s ours. We want to think bigger and differently. We want to have our own concepts and to incubate our ideas. Now, [our improved supply chain and other capabilities] give us the opportunity and permission to think bigger and differently. We’re really trying to foster a culture that thinks outside of the box and embraces new ideas, not throw spaghetti at the walls to see what sticks.

WWD: You’ve tried to create a culture where creativity is recognized and nurtured. How can this environment attract innovation and innovators to Kohl’s?

M.G.: We’re also thinking of ourselves as a platform to bring in customers who are focused on aspiration, inspiration and accessibility, for bringing exciting ideas and scale. What Kohl’s brings to the table is its brand DNA. Kohl’s is a great operator. We know how to operate in a cost-effective way, and that’s hard. Think about what that says about all the new entrants and new digital native brands. We can push it further. Could Kohl’s be a platform for brands to get exposure? We have that kind of reach. I think we’re uniquely positioned to do that. We have to have a growth mindset. We’re wired that way, for curiosity, excitement, celebration, people and bringing big ideas.

WWD: Who is the typical Kohl’s customer?

M.G.: Kohl’s has 60 million customers representing 50 percent of U.S. households. She’s 35- to 54-years-old,middle-income and lives in middle America. We love this customer. I think we can own the middle and be famous for the middle and be known for having more of what middles want. We marry aspiration with accessibility in price points and scale. We’re looking for more ways to bring aspiration to the customer.

WWD: Can Kohl’s survive by catering only to middles?

M.G.: It’s not enough to own the middles. We need to be relevant to Millennials. We’re beginning to put a massive focus on reaching younger consumers. We hadn’t done our job…we were under represented with that cohort. PopSugar reaches one out of every two Millennial females. In terms of newness, we’re launching Scott Living for Kohl’s from twins Drew and Jonathan Scott, whose “Property Brothers” programs on HGTV draw millions of viewers and fans, and Evri, a white space opportunity in the plus-size market, given that more than 60 percent of women are size 14 or over.

WWD: Kohl’s announced this week a strategic partnership with WW that’s piloting the first in-store WW Studio, an 1,800-square-foot space at a Chicago-area Kohl’s for hosting WW wellness workshops; selling WW Healthy Kitchen products and WW Freestyle membership for Kohl’s associates. 

M.G.: When we launched the Greatness Agenda years ago, we identified active and wellness as a massive opportunity for us and saw the white space to become the destination for active and wellness for families. Partnering with WW is an example of how we’re innovating across categories and experiences — across both new and existing brand partnerships to do that.

President and ceo Mindy Grossman said WW is continuously looking for ways to make wellness more accessible. The Kohl’s collaboration gives consumers new experiences and ways to engage with WW.

WWD: You’ve reduced the size of some Kohl’s units. What is the optimum size of Kohl’s stores today?

M.G.: The prototypical store size is 90,000 square feet. We pulled out inventory to lower that to 60,000 square feet. There are 500 stores operating with smaller assortments that [are candidates for right sizing], which reduces the square footage as well as inventory. The reduced inventory has positively impacted gross margins. There are fewer items to discount. We have a new small store format that’s 35,000 square feet. We’ve put them into densely populated areas, but not urban city centers. That’s always something we could potentially explore.

We could take more inventory out. As real estate opportunities come up, we’ll build more small format stores. We’ll continue to experiment more with what’s inside the box. We’re thinking of ways to shape the experience. Do we massively distort one of our businesses? We may take[something] like active wear or home out of the box and make it a free standing store. It’s in our sights to try to distort.

WWD: You’ve given over space to Aldi in 10 locations. How has that worked?

M.G.: We can have some portion of the store actually shrink and build a dividing wall and put in another concept. We want to bring a neighbor that can drive traffic. Aldi is an example of a right sizing partner as we look to bring in traffic-driving neighbors. We’re talking to other people. We’re having lots of interesting conversations with interesting people.

WWD: Kohl’s merchandising strategy has two sides. Talk about the national strategy of the Kohl’s brand promise.

M.G.: National brands play an instrumental role at Kohl’s. They drive traffic and trust with out customers, especially new customers. Existing brands such as Nike have had tremendous growth. Fitbit is a huge category for us. Under Armour is our number-two national brand behind Nike.It’s doubled in size over the last four to five years. Beyond active, we’re the number-one retailer of iconic, beloved brands like Levi’s, Chaps, and Carter’s. National brands are 60 percent of our business. We also have Circus by Sam Edelman, Madden NYCfrom Steve Madden, and through a strategic partnership with Authentic Brands Group, we’ll begin launching Nine West in July with shoes, handbags,outerwear and Kohl’s will unveil a new women’s apparel collection.

WWD: How heavily are you invested [money-wise and philosophically] in technologies such as artificial intelligence? Are you using AI to help consumers build smart carts that incentivize them to order multiple items to optimize speed and keep shipping costs down?

M.G.: Yes, down the road, it will be about having the intelligence to anticipate what customers will want to order. In our world, you call that a smart cart. You have innovation with smart carts today,and it’s going to get smarter and smarter. Digitally, a shopper could be ordering a pair of Levi’s. We’ll intervene and say, for $5 in Kohl’s Cash come in and pick it up. It’s motivating customer behavior. It gets the customer into the store and we have a pretty healthy attachment rate of 20 percent.

Kohl’s also works to stay in front of the customer, and serve the white space across the industry. By understanding consumers’ likes and dislikes, Kohl’s is able to [pivot] toward improving their future experiences,rather than fixing past ones and finding out where the customers are going, not where they’ve been.

WWD: What can you share about the Kohl’s Service Center idea?

M.G.: The Service Center idea is in two pilot stores where we’re testing self-checkout kiosks, BOPIS [buy online, pick up in store] lockers, a new centralized customer service concept and a new merchandising approach for an impulse zone at the front of the stores. We’re still doing a lot of testing with it. In the world we live in today, we have to be in the fulfillment business and leverage machine-based learning. We’ve been testing this for a while and it’s off to a great start. It hasn’t, as much,come into the apparel side of things. We always have an associate stationed for operational excellence.

WWD: Kohl’s ended the holiday season with stores operating around the clock from 6 a.m. on Dec. 21 through 6 p.m. on Dec.24. Same-store sales rose 1.2 percent in the November and December period and Kohl’s posted better-than-expected third-quarter earnings and boosted its full year outlook.

M.G.: We have momentum in sales and earnings.We’re growing a strong balance sheet. That’s a core capability. Based on additional cash, we’ve been able to buy down some of our debt. We’re redeploying $250 million to customer-facing initiatives. We’re challenging the team to work differently. In terms of inventory, we’re surgically going in with a local strategy and planning and managing inventory down. Turns have improved 10 percent at a very rapid rate and product is fresher. I see an even bolder and brighter future for the company and we can accelerate and leverage our strengths and identify new opportunities.

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