Kohl's Pursues Exclusive Route to Better Results

(MoneyWatch)  Kohl's credits a significant proportion of gross margin improvement enjoyed in the most recently completed quarter to private labels and exclusive brands, but they need to be considered separately to tease out what's working for the retailer.

The two are a bit different, of course. Private labels are developed by a retailer and are usually closely associated with its image and value proposition. Exclusive brands are developed with an outside agency ?€" human or corporate -- and licensed by a retailer within a certain sector of the marketplace. Hence, Martha Stewart was able to develop a brand for Macy's, a department store, without breaking her exclusive agreement with Kmart in the discount store sector. While they aren't as closely associated with the retailer as private labels, exclusive brands often have strong identities of their own, whether because of a fashion pedigree, such as is the case with Kohl's Simply Vera by Vera Wang label, an expertise, as with Country Living at Kmart, or simply an identifiable personality, as with Donald Trump at Macy's.

Exclusive brands may cast some color on the store façade and give it a particular cast, whether fun, or haute or youthful, as is the case with Kohl's recently added LC line from actress turned designer Lauren Conrad.

The Kohl's experience suggests that shoppers at lower end department stores, or mid-tier operators, as they are referred to in retailing, want the glamour and fashion that cling to exclusive brands more than the straight-up savings of a private label. In fact, Kohl's exclusive brands have been bolstering national brands, providing a boost for the retailer's fashion identification in core product categories and helping it to target specific audiences.

In the company's first quarter conference call, as recorded by SeekingAlpha, CEO Kevin Mansell noted:

The Dana Buchman line was launched in February. This classic lifestyle brand spans several categories, including women's apparel, intimate apparel, accessories and footwear, and ultimately the brand may extend into home, beauty and fragrance. Sales have significantly exceeded our plans, and we have also seen lift in our Chaps line since the Dana Buchman launch.

April saw the launch of Hang Ten in nearly 240 Kohl's stores and on Kohls.com. Hang Ten is a California lifestyle collection for young shoppers, which we hope to expand to all stores nationwide.

We are also excited about Mudd becoming exclusive to Kohl's in July, just in time for back to school. This partnership expands Kohl's current Mudd merchandise assortment in Kohl's stores nationwide and online.

And finally, in April, we announced an exclusive partnership with Lauren Conrad for LC Lauren Conrad, a contemporary lifestyle brand that will launch in the women's department in approximately 300 Kohl's stores and on Kohls.com this October. The brand is ultimately planned to expand to all stores nationwide.

The success of these recent launches, as well as our other exclusive and private brands, continues to drive increased penetration in these brands to our sales. Exclusive brand and private labels sales as a percentage of total sales increased 200 basis points to 44% for the quarter.

But Mansell said just about all of that is attributable to exclusive brands. Kohl's has introduced a lot of exclusive brand product lately, and new typically catches the consumer's eye. But that's the point. Despite the recession, something fresh and trendy still can win trial from consumers if it offers some kind of value proposition, and exclusive brands are generally price positioned at a discount to national brands designed for the same target consumers.