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Michelle Gass Could Lead Department Stores Out of the Wilderness

What’s working for retail brands and why?

By Sarah Halzack

When Michelle Gass joined Kohl's Corp. in 2013, she was "a little bit of an out-of-the-box hire," CEO Kevin Mansell said in a recent Gadfly interview. 

Gass had been a key lieutenant of Howard Schultz at Starbucks Corp., so she had plenty of retail leadership experience. But let's be honest: The business of selling the masses their daily caffeine fix is quite different from selling dresses, sneakers and crockpots to busy families.

Now, after being Kohl's chief customer officer and chief merchandising officer, Gass has been named to succeed Mansell when he retires in May. That means she will tackle one of the toughest jobs in all of retail: transforming a department store -- perhaps the most besieged format in the industry -- into a digital-era shopping powerhouse.

It's not clear department stores have a long-term future. But if one exists, there's a good chance Gass will be the one to write the playbook for it.

Her work so far at Kohl's suggest she brings to the CEO job an of-the-moment understanding of what consumers want. And her Starbucks experience may be relevant in ways that are critically important, if not immediately obvious.   

Kohl's, like other department stores, is grappling with lackluster traffic. The company has had a long stretch of weak comparable sales (though they improved in the past two quarters).

Glimmer of Hope

Kohl's returned to positive comparable sales in the latest quarter, giving investors some reason for optimism.

But certain things are going right at Kohl's, and Gass has played a big role in them.

For example, Kohl's has seen real strength lately in activewear, not a traditional department-store cornerstone. Gass broadened the merchandise mix in this category. In particular, she scored big in wooing Under Armour Inc. to sell its gear in Kohl's stores. That helped push Kohl's activewear category to a robust 20 percent increase in sales in the latest quarter from a year earlier. 

That merchandise maneuver is revealing in a couple of ways. First, it came when many department stores and big-box chains were trying to beef up private-label offerings to be less dependent on national brands. So, in a way, it was a contrarian move -- and it worked.

Also, consider that Under Armour has lately struggled to get its product assortment right, a big reason why its stock has been one of the worst performers in the S&P 500 in 2017.

Ouch

Under Armour has had a disastrous year, but Kohl's somehow managed to turn the brand's product into a real strength within the Kohl's chain.

Despite that backdrop, Gass's merchandising team apparently managed to get the right Under Armour items for Kohl's customers and display them in ways shoppers found appealing. That's a good sign about her instincts and execution as a merchant.

Gass was also an architect of Kohl's Yes2You Rewards program, which debuted in 2014 and has amassed 30 million active members. It looks prescient now that Kohl's made this loyalty play back then, as such programs have recently become front-and-center in department stores' efforts to save themselves. Macy's Inc., for example, debuted a revamped loyalty programthis fall, and JC Penney Co. Inc. overhauled its rewards offering this summer. Kohl's has vowed to renovate its loyalty program again in 2018, but it'll do so with a running start.

And that brings us to Gass's experience at Starbucks -- a retailer that few can match when it comes to customer loyalty. That background should give her a good framework to think about how to make Kohl's a stickier shopping destination.

And that part of her resume may help in even bigger ways. Mansell noted that Kohl's depends on marketing; unlike mall-based retailers, its stores must be standalone destinations. They are a separate car trip; they are not the store you just wander into while visiting the mall to grab dinner or catch a movie.

Gass proved herself a savvy marketer at Starbucks. In fact, she's the brains behind the Frappuccino phenomenon. It was reportedly her idea to drizzle it with caramel and use a green straw and a domed lid, visual cues that made the drink look more like a treat.

If some of what Kohl's needs to boost in-store traffic is marketing and messaging firepower, then Gass has the goods.

Mansell said Gass has "a bias for action." She'll need that trait in the CEO job. Many department-store leaders have been stubborn about closing storessluggish in their pursuit of e-commerce, and a step behind in reacting to trends such as the beauty boom. They need to embrace change with more urgency.

At Starbucks, Gass was instrumental in helping Schultz climb of a 2008 rut, with steps such as closing several hundred stores and revamping operations. The current environment for department stores will likely call for similarly bold moves. 

Comebacks will be difficult for any department store. But 2018 could be the year Gass starts to show it can be done.

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