Kohl’s Michelle Gass Talks Innovation, Leadership and Handling Pressure

In today’s tough economy, with millions of consumers pressured by inflation, there are still bright pockets in the retail business.

That’s the perspective from Michelle Gass, chief executive officer of Kohl’s Corp., who during her presentation at the WWD Apparel and Retail CEO Summit observed that middle-income shoppers are pulling back on discretionary spending, though with those at the $100,000 or higher income level, “there was growth there. Unfortunately, not enough growth to make up for the others.”

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“That being said, we saw customers responding to value and our private label brands,” Gass added. “We’ve taken that learning to make sure it can influence the remainder of the year and certainly into next year. Sephora at Kohl’s has seemed quite resilient to the economic pressure. So that’s very good.”

For the 2022 holiday season, Gass said value, agility, newness, innovation and Sephora are key.

“We’re known for value. Kohl’s Cash is a bit of an icon,” Gass said in her conversation with WWD deputy managing editor Evan Clark. “This holiday, there will be more Kohl’s Cash given to customers than ever before. And they love it. They’ll come in to earn it and then they get to come back within a week or two to redeem it. So it’s kind of that flywheel effect. That’s a differentiator for us. In the midst of a promotional environment, nobody else has Kohl’s Cash.”

Additionally, “We have by far more newness this holiday than we had last year. After experiencing supply chain issues, leading to many empty shelves, this year won’t be the same. Receipts are coming in,” enabling Kohl’s to beef up certain categories including home, the outdoor lifestyle and toys. “We’re not the biggest toy player, but it does drive traffic. We’ve got a great partnership with Lego as an example.”

She called Sephora’s rollout of shops inside Kohl’s “a $2 billion opportunity in the not-so-distant future,” noting, “There’s not that many $2 billion category opportunities lying around for us.” She called Sephora “a game changer” for Kohl’s, adding, “When we build out Sephora, we actually transform the entire store,” reflowing the merchandise and creating better adjacencies.

Sephora is part of an “entire Kohl’s transformation” involving “owning” the active and casual lifestyle with such brands as Tommy Hilfiger, Nike, Adidas and Under Armour.

“The combination of leading with active and casual brands coupled with high-value private brands, which we’ve done a lot of work on in the last couple years, that’s really powerful as we think about competing,” Gass said.

Kohl’s locations that have Sephora shops are outperforming company stores that lack Sephora. Currently about 600 Kohl’s units have Sephora shops, which average 2,500 square feet. Kohl’s plans to include Sephora in all 1,100 of its stores.

“What’s really exciting is the customers coming in [for Sephora] they’re significantly younger than our core customer, which is part of our strategy,” Gass said. “We love our core customers, but you always have to be flowing in the younger. And the really important part is that one out of every two baskets with Sephora products in it has something else in it.” Many of those shopping Sephora at Kohl’s gravitate to categories like women’s, accessories and active, Gass said.

With the rollout of Sephora is in progress, Kohl’s makes other “big moves,” Gass said. “We brought our powerful national brands and activewear right to the front of the store.” Kohl’s has also set up a flex space to experiment with women’s capsule collections.

In Tacoma, Washington, a 35,000-square-foot “concept” store that rethinks and modernizes the retailer’s brick-and-mortar experience has opened. The merchandising is “hyper localized”; cash registers, instead of being in the front are on the side of the store enabling merchandise to be front and center; self-checkout is being tested, and there’s greater use of mannequins. Potentially, Tacoma could be the prototype for future stores, and elements of it could be applied to existing stores.

Separately, Kohl’s is already advancing its plan to open at least 100 scaled-down stores around the country. These are about half the size of the retailer’s existing stores, which average 80,000 square feet. “I know that can seem a bit counterintuitive in the world of digital, but you know those neighborhoods are waiting for us,” the CEO said.

In other innovations, Gass said the company is experimenting with a marketplace business model for kohls.com, and operates a media network “with a lot of potential.”

There’s also the partnership with Amazon whereby all Kohl’s stores take in Amazon returns without requiring consumers to repackage what they ordered. “That returns partnership is working really well,” Gass said.

Asked if Kohl’s could somehow take the Amazon partnership to new levels, Gass replied: “We are always in conversation with Amazon on opportunities.” In fact, during the early days of the partnership, Kohl’s tested Amazon shopping bags, which didn’t go over well. “OK, fine. But we were testing that as we were testing returns and returns was a home run.”

Kohl’s has been facing pressure from activist investors demanding changes in management and board composition and strategy, even possibly selling the company, to raise shareholder value. Kohl’s has rejected most of the demands, but has made some board changes in response.

“As the CEO, I work very closely alongside our [chief financial officer] day in and day out. We’re talking to our shareholders all the time. And we listen — that’s our responsibility,” Gass said. “They are owners. I engage frequently with our activist investors and we’ll always be open to something if it makes sense for Kohl’s.”

Awhile back, “We actually got two directors from their slate [added to the board] and brought in a third individual,” mutually agreed upon. “They’ve been very additive,” Gass said.

“You know at the end of the day, the kinds of things that they were asking us to do, we didn’t feel like it was right for the long-term health of the business or for our shareholders.”

Earlier this year, Kohl’s shareholders voted down an entirely new slate of directors proposed by the activists, supporting the existing Kohl’s board.

While the activist campaigns and pressures continue, “You have to stay focused,” Gass said. “You have to stay focused on your true north. At the end of the day, they affect very few people inside the company. For most of the folks in the business, the merchants, they’re in the field, they’re running the stores, running the DCs. You want to keep them informed, which I do a lot, but they don’t need to be distracted with this. Like I said, we have folks like myself, the CFO, the board members who are working with the activists.

“It’s about leading through change,” Gass said. “There’s a lot going on in the world. And I think for a company like Kohl’s, we’re healthy. We have a strong foundation. We’ve been around 60 years. This company has weathered many, many storms.

“So my responsibility is to keep the team focused. And in times like this, you have got be clear. You have got to be decisive. You have to have that strength. But at the same time, you have to be optimistic.”

Workers, said Gass, “want to follow someone who sees the future, and the possibility. And that’s why we’re putting so much focus on experimentation and innovation, putting the customer first, like with this new concept store.” The company is also embracing a hybrid work situation, and with that figuring out what’s best for which employees.

“Not everything works. It never will. But you have to keep trying. I’m confident a number of these things will work well,” Gass said.

“Who could have imagined that we would have faced all these headwinds and challenges — a global pandemic, supply chain disruptions.…So I do think this notion of agility is real, the idea that you always have to be on the ready.

“Having an organization and a culture that embraces change and embraces moving fast, I think we’re all working on it,” Gass said. “For me and our board, it’s never fast enough. But we keep encouraging it and modeling that behavior.

“It’s important to drive innovation, even in the face of challenges,” Gass said. “So we’re going to be relevant now, but we’re not taking our eye off the ball to look at the future.”

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