Kohl’s who? The highly successful Midwestern department store chain is not well known in Los Angeles, even to those who follow the retail industry, but that will soon change. Menomonee Falls, Wis.-based Kohl’s Corp. has been actively shopping the San Fernando Valley market for store sites as it prepares to blitz the region in the spring of 2003. “Their target is to open 35 stores in Los Angeles in one fell swoop,” said Ben Reiling, president of Zelman Retail Partners, one of many developers that have had conversations with the retailer. “That’s the way they do it.” Kohl’s stores, a mix of 80 percent apparel and 20 percent housewares and other home goods, are built on the notion that consumers want convenience and discounted prices. Unlike other retailers that often come into a market one step at a time, the company moves into a region en masse. “A big part of the strategy is where we locate,” said Gary Vasques, Kohl’s executive vice president for marketing. “We don’t make people drive to the mall to buy Levi’s. You can buy Levi’s in your neighborhood.” Vasques would not confirm reports that the company plans to enter the Los Angeles market, saying only that Kohl’s will continue its rapid expansion, with 60 stores rolling out this year and another 60 in 2001. Its current efforts are focused on the Southeast and Northeast, but Vasques added, “We will be a national player.” Industry observers, however, say that, because Kohl’s moves into a market with multiple locations simultaneously, the company must get an early start locating possible sites and beginning the entitlement process. One alternative to that strategy would be to acquire another retail chain, as Kohl’s did recently in the Northeast with its acquisition of the Caldor chain of stores. “They have a long ramp-up time and they’re trying to make their deals now so they can coordinate this,” said Bill Haglis, vice president, retail properties for NAI Capital Commercial, who has talked to Kohl’s officials about a site in the Esplanade shopping center in Oxnard. Brokers report that the retailer has hired the brokerage house of Epstein & Associates to help locate properties in the San Fernando Valley, Conejo Valley and Ventura County, although no deals have yet been signed. Ron Wood at Epstein would neither confirm nor deny the reports. In the areas where Kohl’s has opened about 320 stores now dot 26 states from New York to Denver it has quickly carved out a healthy slice of the mid-price market. “They’ve clearly taken market share away from Sears, Penney’s and the major department stores,” said Steven Richter, an equity analyst with Tucker Anthony in Boston. Small is better To get some idea of a Kohl’s store, imagine a small department store about 86,000 square feet in freestanding or strip center locations with parking in front. Inside, the stores carry an assortment of men’s, women’s and children’s apparel, accessories, footwear and intimate apparel, along with some home furnishings and housewares laid out like a discount store with racetrack aisles, shopping carts and central check-out stations. Unlike discounters and retailers like Penney and Sears, though, which use private-label brands, most of the merchandise that Kohl’s carries includes the same brands found in more traditional department stores Nike, Sag Harbor, Haggar and Vanity Fair at prices typically lower than the department store rivals charge. The formula has helped snatch shoppers from both the discount and department store arenas and led to four consecutive years of annual earnings growth in excess of 30 percent. For the second quarter ended July 29, Kohl’s reported a 42 percent increase in net income to $64.3 million (19 cents per diluted share), compared to $45 million (13 cents) for the comparable period in 1999. Net sales rose 33.6 percent to $1.2 billion. Many other chains have sacrificed earnings for rapid expansion, but Kohl’s has managed to keep its income levels high, in part, because of the controlled way in which it adds stores. Beginning with its Midwestern roots, Kohl’s has expanded east and west to contiguous states in a way that keeps its new stores within a day’s drive of its warehouse and distribution facilities. Kohl’s also limits its vendor list to those manufacturers that can supply the quantities its stores require. “As it grows 20 percent annually, it needs to work with vendors that can support timely delivery and efficient replenishment so they always have stock,” said Richter. “Over the years, that’s become a large strategic weapon.” Vasques puts it another way: “We don’t want the customer to come in and not find their color,” he said.
