WisBusiness: Kohl’s stays steady despite rough ride for other retailers

By Brian E. Clark

For WisBusiness.com

In better economic times, Kohl’s net income drop to $229 million for the second quarter – down from $236 million a year ago – would be lousy news.

On the up-side, net sales increased to $3.8 billion, an increase of 2.2 percent for the quarter. Moreover, it beat Wall Street expectations, though same-store sales from May through July fell by 2.3 percent

But the country is in a deep recession. And compared to most other retailers, analysts say the Menomonee Falls-based retailer’s quarterly results – although mixed – show it is doing pretty well.

By contrast Macy’s reported a 10.7 percent drop in same-store sales for July, worse than the 9.1 percent decline that was expected. J.C. Penney’s 12.3 percent same-store sales decrease was a bit steeper than the 11.4 percent decline that analysts had expected.

Dave Keuler, managing director of Mason Street Advisors, a wholly-owned subsidiary of Northwestern Mutual, said Kohl’s is outperforming its peers because of its moderate prices and strong merchandizing.

“Many consumers are looking to shop stores like Kohl’s that offer recognizable brands, good value and event-driven discounts,” he said. “This is in contrast to other competitors where the value is less obvious or the brands aren’t as exciting.”

Keuler also said Kohl’s was quick to respond to the economic downturn, giving its “extra value to either show as profits to investors or pass on to customers in lower prices.”

Erin Hershkowitz, a spokeswoman for the International Council of Shopping Centers, said Kohl’s is attractive to consumers who are looking for bargains.

“So places that can give value at a lower price point are going to come out on top right now,” she said. “It’s the same reason Wal-Mart is doing well.”

As the economy improves, she said shoppers might shift back to stores with higher prices and look for luxury items again. But that may take some time, she warned.

“But even during the good times that preceded the recession, Kohl’s was doing well,” she said. “So it is positioned well and should hold steady. They have a dedicated shopper following.”

Ken Perkins, president of retail consulting firm Retail Metrics, said Kohl’s is building momentum and is turning the corner, far outpacing rivals.

“They have been managing their costs very effectively, cutting inventories back to more manageable levels and they’ve done a good job of getting that discount message out there than they were earlier in the recession,” he said.

“Shoppers think of them as a place for bargains and they have been offering some compelling values in terms of back-to-school clothing. That is where they seem to be excelling a bit.”

The analysts also cited the demise of California-based Mervyn’s as a reason for Kohl’s solid performance. Company officials reported that sales were strongest in the Southwest, where same-store increases were in the double digits.

“They had overlap and they even purchased up to 20 or so of the Mervyn’s stores,” Mason Street’s Keuler said. “As for the future, they are looking pretty good.”

Kevin Mansell, president and CEO of Kohl’s, said his company also may benefited in its home category from the closing of Linens ‘N Things last year.

Looking forward, he warned that retailers should lower their expectations for holiday shopping.

“Last holiday was horrible, but our attitude is that last holiday is the new reality,” Mansell told the AP.

But if things go better this year, Kohl’s can quickly adjust to increasing demand, he added.

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