Kohl’s difficult Q3 is a bad sign for its holiday prospects

The news: Kohl’s is losing traction with shoppers as a series of strategic missteps leaves it vulnerable to intense competition from off-price, ecommerce, and big-box retailers.

• Traffic, transactions, sales, and earnings all fell in Q3, forcing the company to lower its full-year outlook. CEO Tom Kingsbury blamed soft apparel and footwear sales for the retailer’s poor performance.
• He said the company is taking “aggressive action” to reverse the slump—although those efforts will be spearheaded by his successor, Michaels CEO Ashley Buchanan, who will take the helm in January.

How we got here: Kohl’s has employed many tactics to bolster its consumer appeal. It partnered with Sephora, Amazon, and Babies R Us; relaunched tween apparel brand Limited Too; and increased its assortment of branded apparel at the expense of its private labels.

But those initiatives have failed to move the needle on sales—and in certain cases backfired.

• Net sales fell 8.8% YoY in Q3 due to weak demand during the back-to-school season, softer private label sales, and the retailer’s inability to capitalize on demand for categories like fine jewelry, petites, intimate apparel, and legacy home products.
• Kohl’s is now walking back some of its initiatives: It is returning jewelry displays to 200 stores for the holiday season, buying more private-label inventory, and increasing its petite assortment.

Our take: Buchanan has a difficult job ahead of him; Kohl’s is underperforming relative to competitors.

• Macy’s own turnaround plan has yielded modest results.
• And Nordstrom’s focus on top-performing brands is winning it more shoppers across its full- and off-price banners.

The retailer is in dire need of a new strategy—preferably one that doesn’t rely on the strength of other brands to prop the retailer up.

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