Kohl's Brand Strategy May Be Too Much of a Good Thing

Kohl's (KSS) is sitting pretty, but that may not last, as consumers aren't as satisfied with the retailer as they used to be.

But they were happy enough to boost the company's comparable stores sales up by four-and-a-half percent last quarter and earnings by 28 percent, to $431 million, or $1.40 a share.
It wasn't only the stores. The company's e-commerce revenues rose 38% in 2009, on top of a 48% increase in 2008. More is to come.

In a conference call, as transcribed by SeekingAlpha, CEO Kevin Mansell, said that the company was preparing "a major new investment in capital and infrastructure" to fuel E-commerce growth. "It appears that our opportunity in this business is substantially larger than we originally envisioned," he added.

In other good news, Mansell noted that core private labels such as Sonoma had performed well and that its exclusive brand initiatives are expanding. LC by Lauren Conrad, which debuted for fall in 300 stores, is going nationwide in March.
MUDD, launched as an exclusive label for juniors and girls at Kohl's during the back to school period in 2009, also exceeded expectations. Mansell said customer seemed to like the brand cast, as Kohl's has it, in the slot between its least expensive opening price point junior's brand, So and the top-of-the-range Candies. The retailer is following up on the lower end with the launch of Helix, which is meant to attract frugal shoppers. Clearly, Kohl's isn't counting on consumers to shake off their recessionary spending habits any time soon. Private labels that the company owns and exclusive brands that it licenses have helped Kohl's provide a fashion presentation at prices competitive enough to keep shoppers in the stores. Other exclusive brands Mansell identified as having good years were ELLE, FILA, Food Network, Simply Vera, Vera Wang, and Dana Buchman
Naturally, management was pretty happy. The problem, though, is that Kohl's may have reached a tipping point.

In the recently released American Consumer Satisfaction Index study, Kohl's rating slipped slightly (to 79 on a scale of 100) at a time when retail generally gained. Macy's, which is having a bit of an identity crisis, was the only other retailer in the sector to slide.

Kohl's has gone through periods before when consumers grew disenchanted with it. This time, the irony is that the brand strategy that has done so well may be part of the problem. As well as its brands have done, Kohl's is stocking a lot of them. In a low-service environment such as the one Kohl's operates, brands can stand in for employees, suggesting what kind of clothing might interest a particular consumer and acting as the focal point of a department where, at a more upscale retailer, a central checkout/information counter might do the trick. Kohl's is not only adding brands, but brand promotions.

For instance, Kohl's has linked Abbey Dawn by Avril Lavigne via a limited edition clothing line with Disney Consumer Products and the new Johnny Depp fronted, Tim Burton Helmed 3-D film Alice in Wonderland. It's a lot to absorb. With brands and star-studded promotions cramming Kohl's to almost surreal excess, you can almost see the Cheshire Cat smiling and customers becoming confused.