Kohl's will be closing 18 stores in 2016. During a Thursday conference call with investors, CEO Kevin Mansell confirmed the store closures will happen by June.
"While the decision to close stores is a difficult one, we evaluated all of the elements that contribute to making a store successful, and we were thoughtful and strategic in our approach. We are committed to leveraging our resources on our more productive assets."While Kohl's will close several underperforming stores, the move is only part of an overall plan to revamp strategy. The company will open new, smaller stores in seven U.S. markets sometime this year. The new stores will be approximately 35,000-square-feet, or about half the size of a typical Kohl's store.
The retailer also has plans for two off-price stores named Off-Aisle which will be stocked entirely with deeply-discounted returned merchandise. Another 12 Fila outlet stores will likewise be opened.
Counting these locations, the total number of stores actually increases by three, which points towards an adjustment in marketing approach and not merely a cost-cutting measure.
Mansell says Kohl's will be watching these new locations very closely, particularly during the 2016 holiday season. Additionally, they intend to determine how much of the closed stores' sales move to a nearby location or online.
Carter Harrison, an analyst at the Conlumino retail research firm, told investors that the move by Kohl's is likely a good one.
"As painful as it is to close stores, we applaud Kohl's for taking action that is necessary in order to compete more effectively in a more complex and challenging retail environment. It is especially encouraging that such a move is only one part of a wider package of measures, many of which involve more positive steps to reinvigorate the company."Kohl's has been working on a turnaround plan dubbed the "Greatness Agenda" since 2014 which has helped the retailer avoid the widespread sales declines experienced by some competitors. While the plan has kept the company in the black, the gains in sales growth have been minimal.
During the investor call, Kohl's executives reported fourth-quarter earnings per share of $1.58, beating Wall Street predictions of $1.55. Meanwhile, same-store sales increased a meager 0.4 percent.
In contrast, same-store sales for Macy's dropped 4.3 percent, Dillard's fell two percent, and Sears plummeted 7 percent in the fourth quarter. Both Macy's and Sears have announced store closings as well.
Even though gas prices have declined and incomes have increased, economists think this sweeping trend among retailers is being fueled by consumers spending less, saving more, and choosing to pay down debt. Also, more shoppers are buying online from retail giants like Amazon instead of heading out to brick-and-mortar stores.
As reported by Fortune, Kohl's investors have been anticipating that sales would go from $19 billion in 2014 to $21 billion by 2017. However, many financial experts do not think the company can meet that projection despite the new direction.
"Kohl's enters 2016 with high inventory in what has been a highly promotional and competitive retail sector," Citi analyst Paul Lejuez told investors. "We expect pressure on sales and margins to continue."
As of now, Kohl's has 1,160 locations and closing 18 stores at once is the most the company has ever shuttered at one time in its 52-year history. The locations that will be closed have not been revealed, but the company promised to release more details sometime in March.
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