As chief merchandising officer, Doug Howe is at the top of the food chain when it comes to determining what appears on the selling floors at Kohl’s. Howe, who joined the company last May, is responsible for the overall strategy, buying, planning, product design and development for the 1,150-unit chain. His primary mission is to provide balance between the stores and the digital experience, its mature and new customers, and its brands and private labels. Here, Howe discusses how he’s working to further exploit the retailer’s strengths in activewear and with Millennial moms while also navigating the company’s big pilot programs with Amazon, Planet Fitness and Aldi.
WWD: You’ve been at Kohl’s a little less than a year. Talk a little bit about the company you joined and how it’s changing.
Doug Howe: It’s a phenomenal time to join the company and a rapidly changing industry. What really attracted me was the unbelievable opportunity we have in the business, which is centered around balance and duality. We have a very large physical presence: we operate over 1,150 stores in 49 states. Sixty million families shop at Kohl’s. And we contend that our stores are one of our greatest assets. And that’s balanced with a digital/e-commerce business that’s growing rapidly, as well. The customer will ultimately decide the balance of where they want to conduct commerce, but we feel that’s a differentiator for us and definitely one we want to leverage. On a brand perspective, we have a great balanced portfolio there as well. Today, about 60 percent of our business is national brands, and a lot of that growth has been driven in the last few years by the outsize growth we’ve gotten from the active area. And that is balanced by the 40 percent coming from really strong private and exclusive proprietary brands that provide differentiation. And from a customer perspective, we have a very balanced approach there, too. We’re coming up on 60 years of history, so we have a very loyal customer who has been with us for a very long period of time and we don’t want to alienate them. But we know we have work to do to attract a new customer.
WWD: You said you view your stores as an asset. How do you take advantage of that?
D.H.: We’re challenging our stores to work harder. We’ve made significant moves to reduce the amount of inventory we have. We’ve done a lot of right-sizing initiatives to control the size of the box — making that inventory work harder — and provide different experiences in the stores with some of the partnerships we have.
WWD: A cleaner look with less inventory. Is it fewer sku’s?
D.H.: Yes, but the biggest approach has really been around localization. We really have the teams focused on providing and developing unique assortments by door. By pulling back on the inventory, you reduce the customer choices and buy the items we stand for in more depth and increase the in-stock percent as well, so it’s been a positive experience.
WWD: Who controls the local assortment and how much is actually local?
D.H.: Our local is regionalized based on analytics: brands, categories and classifications that have performed well in these areas. There’s probably work to do to build on that. But that goes back to the value of the stores: they’re serving other roles as well. They become a major arm of fulfillment for the e-commerce business as well. We instituted buy online and ship to store and that’s rapidly growing. In fact, in the fourth quarter, over 40 percent of our orders that were placed on digital were actually fulfilled by our stores.
WWD: Do customer buy other things when they’re in the stores?
D.H.: It’s somewhat counterintuitive. You would think people are going through the customer journey to buy something online to avoid a physical experience, but when they elect to pick up in store, in a high percentage of instances they actually buy something else when they come.
WWD: You’ve had a pilot with Amazon for quite a while. What are you learning and where does that go?
D.H.: Basically, in 100 Kohl’s stores, we are piloting an Amazon returns program. Any customer who buys a product from Amazon and wants to return it, can bring it into a Kohl’s store, unboxed, hand it over to an associate and we do all of the work. From a customer experience and feedback perspective, it’s been very, very positive. We’re still piloting to see how we ultimately roll it out, but for me, it’s just another example of thinking outside the box.
WWD: You’ve also been dividing up your stores. How much space is being devoted to that and what kind of tenants are coming in?
D.H.: We’re working through several different dynamics about what that right-sizing opportunity would be. In several, we’re actually consolidating the space and in others, we’re entering into some partnerships and actually cordoning off and building a wall. It was a little confusing when we first announced it: people thought there was actually going to be a supermarket inside a Kohl’s store, but it’s a neighbor. Ninety percent of our inventory is not attached to a mall. So we take about 15,000 to 20,000 square feet and we’re opening a handful of Aldi stores. Planet Fitness will also be a partner of ours and there’s a nice synergy there with the active business we have, which is a category we feel really strongly about going forward.
WWD: How do you merchandise active at Kohl’s?
D.H.: It’s a strategy that the team identified four or five years ago — we really wanted to become a destination for active apparel. We’ve have a very large, established business for quite some time with Nike and Adidas, and we launched Under Armour three years ago. And we have a very strong private label business as well. It’s about 20 percent of our business today and we believe there’s still significant runway to improve that in the future. In fact last year, to answer the question of how high is high, we tested in 30 of our stores an active space expansion — we increased the footprint of the active department across men’s, women’s and children’s by 40 percent to be able to offer a very wide, expansive assortment of product and elevated retail and be able to really outsize that space. We’re really pleased with those results and we’ll be expanding that to 160 stores this fall.
WWD: Can you talk more about your digital platform? How do you make that work with the stores?
D.H.: For us, it’s more about the balance and the convergence of physical and digital retail. We’re trying to strike what that proper balance is. I think from a merchandising perspective, it’s more about what inventory you want to have shared across both of those platforms. On e-commerce, we can do more extended sizes, [exploit] the more underdeveloped businesses. We’re not looking at them separately. We’ve integrated the teams, we’ve integrated the strategy, we’re letting the customer choose which platform they want.
WWD: You mentioned you have a lot of pilots. What else is in the works?
D.H.: The teams are really focused on newness so continuing to push the envelope with newness within the brands we offer today and also introducing new brands and products. We’ve had several announcements this year and will have a few more before the year is over. We just launched a proprietary plus-size brand called Every and it’s off to a really good start. We announced a partnership with WW, and we’re really excited about Nine West, which is going to be launching this fall. It’s certainly synonymous with fashion footwear and handbags but there’s an exclusive line of apparel that we’ll have there as well. There’s more of a contemporary, Millennial skew to that. On the home side, we’ve partnered with Jonathan and Drew Scott, the Property Brothers, and we’ll have an exclusive line of home products called Scott Living. It’ll be a lifestyle presentation in our stores that really addresses a white space as well. There are several initiatives around building out the digital strategies and lots of pilots around the Millennial opportunity as well.
WWD: You do a lot of testing, but how do you pick what to test?
D.H.: Through our own research and penetration and market share and where we think there’s white space opportunity. The customer obviously controls the demand curve in some of those businesses and some of them are areas of strength, like active, and others like plus size are where we know it’s an underserved market.
WWD: How big is a usual test?
D.H.: It varies. We have a very methodical process with regards to actually reading the financials and we’ll do that in 10 or 20 or 50-store tests. That’s what’s so powerful about having the laboratory of 1,150 stores and a very large e-commerce site. You can test a lot of things and a lot different variables to validate the results.
WWD: You mentioned the Millennials. It’s a very large group. What are you doing to target that group?
D.H.: Every retailer is talking about the Millennial opportunity. For us, we believe our sweet spot will be addressing Millennial families. Our purpose is to inspire and empower families to lead fulfilled lives so that’s always been in our crosshairs. We have a really nice base for Millennial families and through our own research and insights, she’s giving us insight that she shops Kohl’s for her kids but she finds the rest of the store difficult to navigate. So in addition to some of the brands we’re offering to cater to that customer, we’re also going to be testing a merchandising initiative. In our women’s pad, we’re going to cross-merchandise where we’re actually mixing brands and putting outfits together. It’s called the Outfit Bar and we’re going to be doing that in select stores and on e-comm. She’s time starved so we want to make it as easy as we can when she’s in the store.
WWD: What about Gen Z?
D.H.: We haven’t really focused on that. We have a really large kids’ business and Millennials will be the next opportunity. Our approach now is to capture her when they start their families and bring them along on the journey.
WWD: How do you offer a differentiated assortment?
D.H.: The other big initiative is focusing on speed. In our private label product in particular, we’ve taken a dramatic amount of time out of our lead time. The shortest amount of time between concept and delivery in store would be 13 weeks. That has allowed us to be a lot more nimble.
WWD: You make it sound like Kohl’s is a laboratory with all these things going on. Does it ever get confusing?
D.H.: It’s incredibly motivating. It’s not chaotic at all. There’s no shortage of ideas but they all come from a really good place. People are very positive and encourage people to try things, fail fast, and learn. It’s a really positive culture.