Popular retailer could be in for a major change (whether it likes it or not)

In the 2020s, it's a great time to be gluten-free, artificially intelligent, a Kansas City Chiefs fan, or an early investor in Florida real estate. 

It's not such a great time to be a legacy retailer with thousands of locations splayed across the country and plenty of liabilities on your balance sheet. 

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We've seen it once, we've seen it a dozen times. So many retailers have struggled more or less with these issues in recent years. Bed Bath & Beyond, Macy's, Joann Fabrics, Party City, and others once beloved for their selection and convenience but now sleepwalking into a new decade struggling to find a discernible and profitable direction. 

And new reports suggest the next retailer that may be headed for trouble is Kohl's  (KSS) , the off-mall strip plaza retailer which sells everything from bedding to kid's clothes. 

Kohl's was popular in the early and mid 2000s for its convenience and selection. Busy moms who didn't want to trek to their busy shopping mall and spend a weekend hunting for their family's various needs could instead pop by their local Kohl's and find budget-friendly items for kitchen, home, kids, cosmetics, and outdoor activities. 

But Kohl's has been struggling in recent years. With the introduction of online shopping, it proved difficult to roll out as robust of a digital presence to keep up, especially with behemoths in the space like Walmart  (WMT)  and Amazon  (AMZN) . So it did what has now come to define the retailer – at least in recent years. It partnered. 

Kohl's piloted a nationwide program with Amazon in 2019, allowing customers to pop by a participating Kohl's location to process their Amazon returns in the hopes that they'd stay to peruse the aisles while they were at it. Two years later it partnered with LVMH  (LVMHF)  powerhouse Sephora, bringing pared-down versions of the cosmetic shop inside its walls, in similar hopes that beauty enthusiasts would linger and bring spillover sales. 

These partnerships brought mixed results, both Kohl's and Sephora claim the latter deal has provided a boost to both businesses. But it may not be enough to impress investors. 

External pressure mounts on Kohl's  

Kohl's has been marked by several consecutive quarters of unimpressive growth. Its most recent Q3 2024, which ended in October, saw a 39.18% decline in net income and a 5.21% revenue drop compared to the year-ago period. Its Q2 wasn't any better, with the retailer reporting a 59.44% drop in net profit and a 4.70% decline in revenue. 

Kohl's stock is down over 14% in the past year, and investors are taking notice. Some, however, are doing the counterintuitive act of actually snapping up more equity in the company, and mounting reports suggest they're doing it not because they believe in the prospects of the underlying business as it stands now, but rather, what it could be in the future with the company out of the picture entirely. 

Here's a look at a few large investors who have taken outsized stakes in Kohl's recently: 

• Dimensional Fund Advisors: 5.2% stake
• FMR LLC (a Fidelity affiliate): 7.48% stake
• GIC Private Limited (investment firm owned by the Singapore government): over 5% stake
• Vision One Management Partners: undisclosed stake

Vision One, a hedge fund co-founded by former Canadian Prime Minister Stephen Harper and Carl Icahn understudy Courtney Mather has purportedly tried to pressure a sale of Kohl's and wedge its way on to the board. It's likely that many of the other aforementioned newcomers are interested in something similar. 

It's likely that many – if not all – of these investors aren't interested in the underlying fundamentals of Koh's business but rather the massive footprint it offers for other prospective dealings. Kohl's operates over 1,110 stores in 49 U.S. states, and has already entertained partnerships in the past with Aldi, a discount grocery chain, and Planet Fitness  (PLNT) , a budget gym. 

“In today’s day and age, I can’t imagine a sovereign wealth fund interested in anything but real estate if they are buying in to a retailer,” Columbia University director of retail studies Mark Cohen said.

But Kohl's is no stranger to external pressure. It rejected a bid by Vitamin Shoppe  (VSI)  for an acquisition of $64 per share, instead stating it was worth at least $70 per share. The deal ultimately fell through in 2022.  

Kohl's newcomer CEO, former Burlington chief executive Tom Kingsbury, took over in 2023, and has said the retailer intends to shift its focus back to brick-and-mortar. 

“The digital business is really what’s bringing us down,” Kingsbury said, adding, “I’m confident about the fact that we are doing well in stores.”

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