No Easy Fix for Kohl’s Troubles

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A group of activist investors thinks

Kohl’s


KSS 7.99%

can do better, but that may be easier said than done.

An investor consortium with a combined 9.5% stake in Kohl’s is attempting to take control of the department-store chain’s board, nominating nine to its 12-person board. The investors are calling for a plan to grow sales and are pitching a sale-leaseback of some of Kohl’s real-estate assets, among other changes.

But Kohl’s faces industrywide problems. For more than a decade now, department stores have been losing market share to discounters, which grew quickly starting in the recession that followed the 2008 financial crisis. The pandemic has made things worse with online retail grabbing more share and apparel brands shifting focus to direct-to-consumer sales.

In fact, Kohl’s is the best-performing of the struggling bunch, making it a curious target for activists. For the nine-month period ended Oct. 31, 2020, its top line declined 26% from a year earlier.

Macy’s,

Nordstrom

and

Dillard’s

all lost roughly 35% in the same period. Both operating margins and returns on invested capital declined between 2011 and 2019 at Kohl’s, but its numbers are still mostly better than those peers.

Sale-leasebacks could help juice returns for a while, but holding on to assets isn’t such a bad strategy either. Macy’s, for example, managed to raise $3.15 billion in credit last year to bolster liquidity, using its real estate as collateral. The move helped the department-store chain distance itself from bankruptcy.

At the end of the day, a retail business needs to offer compelling reasons for customers to come in the door. Kohl’s has actually been the most proactive on that front. It has a program to allow customers to return

Amazon.com

items through its stores, and an initiative under way to lease space next to its stores to traffic drivers such as Aldi’s and

Planet Fitness.

Last year, it began opening highly popular Sephora stores inside its department stores.

Kohl’s shares rose almost 10% after The Wall Street Journal’s late Sunday report on the activist moves. While an extra push certainly doesn’t hurt, it would be a pity if the shake up only leaves investors with unrealistic expectations.

How will the pandemic affect America’s retailers? As states across the nation struggle to return to business, WSJ investigates the evolving retail landscape and how consumers might shop in a post-pandemic world.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

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