Kohl’s is Trying to Thread a Tiny Retail Needle

The 1,200-store chain faces a tough challenge when it comes to pricing its goods against perennial discounters in an inflationary period.

Retailer Kohl’s  (KSS) - Get Free Report is caught in a tight spot as inflation continues to ravage American consumers.

The 1,200-store chain wants to be able to compete against bigger box stores that make discount pricing and promotions their core offering. At the same time, it has to preserve some kind of margins as it struggles to rebuild revenue.

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In the latest quarter, Kohl’s reported an unexpected loss of $2.49 a share, and offered a lackluster forecast for fiscal year 2023. Sales also fell year over year.

Shares are trading in the upper $20s, a far cry from its 52-week high of $63.74.

But the reality of discount juggernauts like Walmart  (WMT) - Get Free Report and Costco  (COST) - Get Free Report means the company has to find other ways to stand out with consumers, since it can’t possibly compete on scale with its much larger rivals.

One strategy to help that along has been a partnership with beauty products company Sephora. Kohls has built Sephora “stores in stores” in more than half of its locations and plans to add another 250 this year. Sales in that category were a bright spot in the latest results.

But in comments with analysts, CEO Tom Kingsbury was candid about the dilemma facing the company. “We know that our promotional strategy at times can be a disadvantage to Kohl’s when compared to our competitors’ price-focused strategies,” Kingsbury said on a call after the latest financial results, as Retail Dive noted. 

Kingsbury added that “we will test everyday value pricing with a small percentage of our product assortment and, if successful, grow it appropriately in subsequent years. We fully recognize the sensitivities around pricing with our customers and we’ll approach this with great measure and flexibility.”

Kohl’s appears keenly aware of the failed attempts a decade ago by JC Penny to use value prices rather than recurring markdowns to draw customers.