Kohl’s is going in-house to finally rejuvenate its business.
The department store has just re-launched its top in-house brand, the billion-dollar Sonoma line of apparel and home goods, in a bid to kickstart a big turnaround effort that started 18 months ago but has only yielded modest sales increases so far.
After years of chasing all sorts of trends and ultimately confusing customers with collections that were trying to be all things to all people, Kohl’s has reinvented its 22-year-old flagship brand. The focus now is on a narrower collection of stylish, but not fashion-forward, basics made with better materials.
“Over the years, we were looking at it as different categories within Sonoma, like women’s, men’s and home items, rather than as a true brand,” says Michael Gilbert, executive vice president of product development for Kohl’s. “We knew that Sonoma was a vehicle we needed to re-imagine.”
In September 2014, Kohl’s Chief Executive Kevin Mansell announced a turnaround plan, which he and his executives called “The Greatness Agenda,” aimed at getting the Milwaukee-area based retailer back on the growth trajectory that had made it a customer, and Wall Street, favorite for years. But the results have not been that great: though Kohl’s comparable sales have risen for five straight quarters, the gains have been small, including a 0.4% increase during the holiday season.
Kohl’s expects comparable sales to rise only 1% this year in a best-case scenario.
So, the pressure is on to get the Sonoma relaunch right, a reinvention that may serve as a blueprint as the retailer works on updating some of its other private brands. Those Kohl’s-only brands and exclusive items, which include Croft & Barrow and Apt 9, generate nearly half of the company’s $19 billion in annual sales. But last year, as sales of widely available brands like Nike (NKE) soared, Kohl’s private brands business stagnated.
“The health of our private brands is critical to our success,” says Michelle Gass, Kohl’s Chief Merchandising and Customer Officer and one of two confirmed candidates to become CEO. “Given that this is our largest brand, it touches the most categories than any other brand; it has big implications.”
Kohl’s set about reinventing Sonoma a year-and-a-half ago, hiring New York-based branding consultancy Graj & Gustavsen. Their advice: keep it simple.
So the retailer has eliminated a chunk of the Sonoma line to foster cohesion. Sonoma got bloated, and it lost its identity, from years of adding items that had done well at some point and kept in as the company played it safe. Some products, like holiday-themed home décor, some jewelry, and ornately decorated women’s t-shirts, have been moved to other brands. And, perhaps more importantly, Sonoma items are now higher quality, Gilbert says.
Lower commodity costs have given Kohl’s the leeway to use those savings to improve the quality of its products, such as better washes on clothes so they feel lived in and comfortable, which is key for jeans, a centerpiece of the Sonoma line. And on the home front, Kohl’s is using technology to make towels feel softer with each wash, among other improvements.
While this may be new for Kohl’s, the market is not leaving it much choice. Its primary rival, the resurgent J.C. Penney (JCP), has a long-standing private brand business. And Penney is expanding those collections; one of which, Arizona, is a billion-dollar denim heavy brand.
But mall-based apparel retailers like Abercrombie & Fitch (ANF), Gap (GPS), and American Eagle Outfitters (AEO) are also moving in that direction, reversing years of sacrificing quality that enabled them to lower prices. But now they are seeing that the inferior apparel only made consumers view their goods as commodities.
Many of the changes at Kohl’s have to do with esthetics: for instance, in bedding, there will be more two-color prints. The ads will have black-and-white backgrounds so the merchandise pops more. On the Kohl’s website, images of Sonoma items are larger, giving them a more elevated feel. And at 400 stores, the collection will be presented with fancier fixtures.
Another big test for the new Sonoma: it will have shorter lead times from conception to presentation on shelves to adjust to fashion trends. Previously, planning was done for four separate seasons. But now, inventory will be leaner and merchandising decisions will be made on a monthly basis, something Gilbert says will protect profit margins by reducing how much merchandise ends up sold at clearance.
Analyst Daniel Binder of Wall Street firm Jefferies said in a note on Kohl’s this week that “this year should show significant progress on inventory [and] gross margin,” noting that shorter cycle times would help the retailer react to trends faster and improve sales and profits.
Sonoma is the test case. The lessons learned from its new approach will be used in other parts of the business. Kohl’s wanted to be sure its top label was flying high again before addressing the whole company.
“It should be the crown jewel of our company. It’s our brand,” says Gass.
