Kohl’s Corporation has disclosed its strategic initiatives aimed at enhancing efficiency and investing in digital transformation as key focal points for the year 2024.
The US-based retail giant aims to bolster productivity across its enterprise by harnessing the power of automation and technology. Furthermore, Kohl’s aims to elevate marketing efficiency, setting a target advertising-to-sales ratio of 4 percent. Additionally, substantial investments are earmarked for technology upgrades to enhance productivity within its fulfillment centers.
However, despite these strategic maneuvers, Kohl’s reported a modest decline in sales of 1.1 percent year-over-year, amounting to $5.7 billion for the quarter concluded on February 3, 2024. Nevertheless, there was a notable improvement in Q4 operating income, which stood at $299 million, in stark contrast to the $302 million loss recorded in the prior year.
Tom Kingsbury, Kohl’s chief executive officer, in its earnings report, has attributed this improvement to a surge in gross margin, which rose by 937 basis points compared to the previous year. This surge was primarily driven by reduced clearance markdowns, along with lower freight expenses and digital-related shipping costs.
Looking back at the fiscal year 2023, Kohl’s witnessed a 3.4 percent decline in sales, amounting to $16.6 billion. However, the company reported a substantial increase in operating income, reaching $717 million, compared to a mere $246 million in the previous year. Kohl’s management asserted that prudent management of gross margin and expenses facilitated the achievement of an operating margin of 5 percent in Q4 and 4.1 percent for the full year.
Kohl’s revealed that its gross margin benefited from lower freight expense and digital-related costs of shipping. For the full fiscal year 2023, gross margin increased 347 basis points to 36.7 percent. SG&A expenses in Q4 fell 4 percent to $1.6 billion. The decrease was driven primarily by lower marketing and distribution costs.
Kohl’s SG&A decreased 1.3 percent to $5.5 billion. Depreciation expense in Q4 was $187 million and was $749 million for the full year. Depreciation expense dropped $13 million and $59 million, respectively, driven by reduced technology capital spend, Kohl’s revealed. Kohl’s does not reveal its spending on tech with specific focus on digital transformation.
Kohl’s said it is poised to allocate approximately $500 million towards capital expenditures, including expansions related to its partnership with Sephora and other store-centric investments.
Digital Plans
Despite the emphasis on digital transformation, Kohl’s observed a decline of 10 percent in digital sales during the fourth quarter and 15 percent for the full year. Digital accounted for 35 percent of Q4 sales and 29 percent of full year sales. This means, Kohl’s has generated $4.8 bn sales from online platforms in 2023. Kohl’s has more than 20 million app users.
In the quarter, digital sales trends improved as the quarter progressed, with December and January down mid-single digits percent to last year. Spearheading the digital transformation efforts are Siobhan Mc Feeney, Chief Technology Officer, and Nick Jones, Chief Merchandising & Digital Officer.
Kohl’s focus this year will be on reinforcing value simplification in all communication and scaling new targeting initiatives, as well as improving the search and product recommendation capabilities of site to drive increased traffic and higher conversion. Kohl’s does not reveal the number of customers viewed its website to purchase.
“We’re also doing things to drive and enhance our search capabilities so we have better querying, better search results. We aim to drive not only the traffic but also conversion within our website,” Kohl’s CEO said.
Addressing the company’s priorities, Kohl’s reiterated its commitment to enhancing the overall customer experience. This includes initiatives to improve in-store experiences, such as expanding the presence of Sephora within its locations.
Additionally, efforts are underway to drive growth in underrepresented product categories while enhancing the relevance of its apparel and footwear offerings. Kohl’s also expressed its intent to grow its store footprint sustainably in the long term, with a focus on enhancing store sales productivity.
Reflecting on the achievements of 2023, Kohl’s highlighted the re-establishment of stores as a cornerstone of its strategy. Notable initiatives included leadership focus, increased investments, and the implementation of new operational processes. These efforts yielded positive results, with store comparable sales remaining flat throughout 2023, marking the best performance since 2010.
Looking ahead to 2024, Kohl’s remains committed to building upon its momentum with a range of store-centric initiatives, including new merchandising strategies and the rollout of queuing lines in a significant portion of its stores. Furthermore, efforts to revitalize the digital business are underway, with a focus on enhancing search capabilities and product recommendations to drive increased traffic and conversions.
Baburajan Kizhakedath
