Kohl’s is a mess in more ways than one

The department store chain presented a bleak outlook for 2022 on Thursday, saying it expects full-year sales to fall 5% to 6% from a year ago and blaming high inflation for keeping shoppers – especially its middle-income consumers – from spending more in its stores. The company also reported lower sales and profits for the quarter ended July 30.

Kohl’s shares were down more than 4% in morning trading.

But the economy is not his only problem. Kohls, (KSS) similar to other major chains including Target (TGT) and walmart (WMT)is stuck with a lot of excess inventory that it cannot be erased. The chain’s inventory in the quarter was 48% higher than the same period last year.

“We have adjusted our plans, implementing actions to reduce inventory and reduce expenses to account for the weaker demand outlook,” Kohl CEO Michelle Gass said in a statement.

Unstable course

With more than 1,100 stores in the United States and approximately $19 billion in annual sales, Kohl’s is the largest department store chain in the United States. But the company is struggling to find its own way.

Kohl floated and then removed the idea to sell to Franchise Group (FRG), a holding company that owns The Vitamin Shoppe and other retail brands.
The retailer is trying various tactics to stay relevant, especially for younger consumers. It recently teamed up with popular cosmetics brand Sephora to open Sephora mini-stores its locations. Kohl’s said the move has helped it acquire a million new customers since last August, who are younger, more diverse and shop more frequently than the average consumer.

And last week, the retailer announced it was rolling out a self-service pick-up option to all of its stores for online orders within two hours.

But all of these efforts, while necessary for Kohl’s, can’t completely cover up the chain’s most fundamental problem, said Neil Saunders, retail analyst and managing director of GlobalData Retail.

“In our view, the main source of Kohl’s woes is internal. Specifically, the company has lost track in terms of merchandising and lineup planning and appears to be taking a seemingly random approach to buying. The result is a jumble of disjointed products in stores, which is exacerbated by a very serious deterioration in store dress standards,” Saunders said in a note Thursday.

“Previously, although a bit uninspiring, Kohl’s was disciplined and neat in its presentation. Over the past year, that’s all gone,” Saunders said. “In this type of economic environment, consumers will quickly abandon purchases and stores that require too much effort for too little reward.”

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