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How Kohl’s Is Succeeding Where Other Chains Haven’t

For starters, CEO Michelle Gass says she doesn’t think of the company as a department store

Department stores, once the go-to destination for the shopping needs of the entire family, have been under assault as buying has shifted online and to more value-oriented chains such as Walmart Inc. and T.J. Maxx.

While other types of retailers, including Best Buy Co. and Target Corp. , have pivoted enough to survive the retail crisis of recent years, in which dozens of chains went under and hundreds of stores closed, department stores have been slower to change.

Sears Holdings Corp. and Bon-Ton Stores Inc., two venerable department stores that dominated their markets for much of the past century, filed for bankruptcy protection this year. Others are struggling to stay relevant, including J.C. Penney Co. , which is on its third chief executive in seven years as it has careened from one strategy to another.

Kohl’s Corp. by contrast, is surviving the onslaught better than many of its peers. It has tried to do things differently, including striking a controversial partnership with Amazon.com Inc. and teaming with social-media platform PopSugar Inc. to design a line of clothes. The result has been a string of strong sales.

Chief Executive Michelle Gass, a 50-year-old former Starbucks Corp. executive who took the helm of Kohl’s in May after joining the company in 2013, spoke to The Wall Street Journal about the changing retail market and what Kohl’s is doing to stay ahead of the competition. Edited excerpts follow.

WSJ: Why do you think Kohl’s is having success when so many other retailers, especially department stores, are struggling?

MS. GASS: We don’t think of ourselves as a department store. We aren’t in malls. Our stores have a racetrack design, which makes them easy to navigate. The cash registers are at the front of the store, rather than dispersed in departments, which makes checkout easy to locate. From the early days, we created a model that is easier and more convenient for shoppers than a typical department store.

WSJ: You have more than 1,100 stores. Unlike other retailers, you haven’t had mass closings. Why is that?

MS. GASS: We haven’t faced the same pressure to close stores as other retailers have. The moves we are making to use our stores differently are helping us to keep them relevant. We are making our stores smaller. We are looking at opportunities to lease out extra space. In Milwaukee, we are leasing space to Aldi [the supermarket chain]. We put up a wall. We’re reducing the inventory by double digits and assorting as a smaller store.

Embracing Amazon

WSJ: Last year, you launched a partnership with Amazon.com. You’ve created dedicated departments to showcase some Amazon electronic products such as Echo. And you are allowing shoppers to return purchases from Amazon at Kohl’s stores. Weren’t you nervous about getting in bed with a company that is upending the retail industry?

MS. GASS: There is a lot of space for both of us. In thinking about the partnership, it was how do we take Amazon’s dramatic customer base and combine it with Kohl’s physical stores to create value for both of us.

WSJ: How is it going so far?

MS. GASS: We now accept Amazon returns in 100 stores and have dedicated Amazon departments in 30 stores. Based on the volume of returns we are getting, people are using the service. What we are trying to determine is, of the people coming in and returning something from Amazon, how many are crossing the aisle and buying something from Kohl’s?

'Mindset of experimentation'

WSJ: Department stores tend to have an older customer base. What are you doing to reach younger shoppers?

MS. GASS: That’s where PopSugar comes into play. It’s one of the most wide-reaching social-media properties for millennial females. We were already advertising some of our brands on PopSugar. That told us they are reaching the customers we want to reach.

We designed and produced a clothing collection with them. The first line is in stores now.

WSJ: How can you tell whether it’s resonating with younger shoppers?

MS. GASS: Thirty-five percent of the sales are online, which is much higher than our overall average.

WSJ: Another way department stores tend to get younger shoppers is through their gift registry business. Yet, you chose to exit that business. Why?

MS. GASS: We weren’t creating a great customer experience, so I’d rather not be in the business. We’ll probably bring it back someday, but it will look a lot different. When you do things like that, it forces you to think about making a sea change versus an incremental change.

WSJ: Change can be hard for people in big organizations. How have you tried to get your team to embrace it?

MS. GASS: I tell them the most important thing is around innovation and speed. Those that are too slow will be left behind. You aren’t always going to get it right, but you’ve got to be out there trying things and really have a mind-set of experimentation.

WSJ: With so many retailers disappearing—Toys “R” Us Inc. recently closed all its stores—where do you see opportunity to pick up market share this holiday season?

MS. GASS: We’re getting into the toy business in a bigger way. We added the Lego and FAO Schwarz brands. With Bon-Ton not around, that store had a lot of overlap with Kohl’s. We plan to go after those customers.

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