Kohl's is the latest retailer dedicated to expanding its physical footprint by going smaller.
The Menominee Falls, Wisconsin-based department store chain, which has 1,171 locations, is planning to open just over a half-dozen new ones this year, according to Tom Kingsbury, the company's CEO. But Kohl's also plans additional store growth, and is evaluating exactly how it should approach that, Kingsbury said Wednesday.
The chain is "committed to capitalizing on new-store growth opportunities over the long term," according to the CEO, who added "but that work is still underway."
Kingsbury didn't offer many details about those plans on a fiscal second-quarter earnings call, other than to say that the new Kohl's stores will likely be 35,000 to 55,000 square feet, smaller than the chain's traditional stores averaging 84,000 square feet.
Several retailers, including Macy's and Burlington Stores, have been opting to downsize stores to enter new markets, cut costs and reach customers closer to where they live. On Tuesday, Macy's announced it was opening four more of its small-format stores, expanding the concept to the Northeast and West.
Kohl's is on track to open seven new stores this year, including one relocation, according to Kingsbury. There were two new store debuts in the first quarter, with five remaining openings slated for this fall. He didn't identify where the new locations are, and Kohl's didn't respond to an email from CoStar News asking where the stores will be. But at least one of them is slated for Garden City, Kansas, according to a local media outlet.
As for store expansion, Kingsbury said an evaluation is being done now on how big new locations should be and where they should open.
"We're looking at it very thoughtfully in terms of how we should expand," he said. "We've really just begun the analysis, and obviously in later earnings calls, we'll share more. But one thing we know we're going to do is we're going to open smaller stores. The biggest store we'll open going forward will be 55,000 square feet. We'll be adding probably a lot of 35,000 square feet [locations]."
Kohl's was exploring and testing smaller-store concepts more than a year ago under the previous CEO Michelle Gass, whom Kingsbury succeeded. During an investor day in March last year, Gass said Kohl's would be expanding a successful pilot of a 35,000-square-foot format, which would serve as the model for 100 small-format stores planned for smaller markets.
"The smaller-format store gives us greater real estate flexibility, and the opportunity to go into markets and neighborhoods that couldn't support a full-sized Kohl's," Gass said during the investor event. "So between the smaller-format stores and a few key market openings, we are confident that we can successfully open a hundred Kohl's stores in the next four years."
Following complaints about Kohl's performance by dissident shareholders, Gass decided to leave the chain last year to join Levi Strauss & Co. Kingsbury served as Kohl's interim CEO until being named to the post permanently in February. The new CEO's comments indicate Kohl's wants to expand with smaller stores but isn't in a rush to do so.
For the second quarter, Kohl's net sales declined 4.8%, to $3.68 billion versus the prior-year period, while comparable sales dipped 5%. A bright spot in the earnings was the sales generated by the in-store Sephora shops that Kohl's has in more than 800 of its stores now. Nearly 200 full-sized Sephora shops were opened in the second quarter, with another 50 slated to debut in the third quarter. In addition, Kohl's said it is opening 50 smaller-format Sephora shops by the end of the year, with plans to roll them out to the remainder of the chain by 2025.
The traditional store-in-store Sephora shops are 2,500 square feet, with the smaller ones just 750 feet.
Kohl's "achieved significant total beauty sales growth of nearly 90%" in the second quarter," with "greater than 20% comparable beauty sales growth in the Sephora shops opened in 2021 and 2022," according to an investor presentation. Kohl's has a $2 billion sales goal for its Sephora shops by 2025.