Department stores gird to battle onslaught of Kohl's. (Up Front).

Kohl's is coming to Los Angeles. And big-name retailers in the area appear to be taking notice.

Although they deny changing their marketing strategies in response to the Menomonee Falls, Wis.-based department store chain, Macy's and Robinsons May are renovating some of their stores to resemble their new competitor.

Kohl's Corp., a 420-store chain that is somewhere above a Target and Wal-Mart but not as upscale as a Macy's, has an aggressive plan to roll out 30 locations in Southern California next spring, including stores in Torrance, Cerritos, Glendora, Granada Hills, LaVerne and Downey.

The company stands out in several ways: It puts stores in stand-alone locations instead of malls, has wider aisles than higher-end department stores and includes plenty of checkout lanes. Kohl's has posted stronger same-store sales gains than its rivals this year, notwithstanding a surprise drop in September same-store sales reported last week.

As Kohl's enters Southern California, Robinsons-May plans to open up to a dozen freestanding stores in the area over the next two-and-a-half years--its first in 50 years.

The first of these stores that opened last week at the Irvine Spectrum has wider aisles, shopping carts for customers, express checkout counters, merchandise at lower prices than their traditional stores and no furniture department. At 140,000 square feet, it is 20 percent smaller than a traditional Robinsons-May store.

Next month, Federated Department Stores, parent of Macy's, plans to overhaul 42 department stores by providing shopping carts, more price check stations, better fitting rooms and a newly designed children's department. The renovated stores include Macy's locations in Sherman Oaks, Torrance, Glendale and Thousand Oaks.

Both retailers deny they are altering their marketing schemes or downgrading their stores to copy Kohl's successful formula. They say the changes have been in the works for several years (about the time Kohl's started eyeing the California market). "This is in response to what we have been saying for the past several years that our key initiative is to attract a younger customer," said May Department Stores spokeswoman Sharon Bateman.

Focus on convenience

But few retail analysts doubt that Kohl's has had an influence on Robin sons-May or Macy's.

"When Kohl's comes into a market place, they are not coming in to pick up sales because there are extra sales to be picked up," said Aubie Goldenberg, a retail expert and partner with Ernst & Young in L.A. "They are really predatory and pick up sales from other retailers."

One indicator that its new locations are especially successful: total sales soared 22.7 percent for the first 35 weeks of the year, through Oct. 5. "What really sets Kohl's apart is its execution," said Value Line analyst Paul Debbas in a recent report. "There is plenty of room for expansion."

But in a weakening retail environment, the battle for customers could get ugly. Last week, Kohl's and other discount and department stores reported disappointing sales figures for September.

For Kohl's, same-store sales fell by 2.3 percent, the first such drop in 18 months.

By comparison, same-store sales fell by 6.2 percent at May, while Federated's were flat. At Wal-Mart Stores Inc., September same-store sales rose by 3.3 percent, in line with previously lowered guidance, while Target Corp. reported a 0.8 percent dip.

Kohl's Chief Executive Larry Montgomery stuck with previous projections for fourth quarter earnings. "We will continue to be aggressive in our marketing and are focused on increasing market share," Montgomery said in a prepared statement.

In Los Angeles, the one stumbling block to growth may be the dearth of prime locations at reasonable prices. Bob Buchanan, an analyst with A.G. Edwards, said that Kohl's was unable to secure old store locations at cheap prices for remodeling so it will have to build many of its stores.

In a recent report, Buchanan noted "the relatively high costs that Kohl's has likely been required to bear to enter Southern California.

Kohl's target customer is a middle-income consumer whose household income is between $35,000 to $100,000. That customer could be a busy mother who is juggling work, home and children's activities and doesn't have much time to shop.

"Kohl's uses the buzz word 'conveniences all the time," said Ellen Schlossberg, an analyst with William Blair & Co. in Chicago. "The convenience formula they strive for includes putting stores in easier to access locations that are not in malls but stand-alone locations where you can pull in and out of the parking lot quickly."

But their stores don't look like discount outlets. "They provide very attractive stores even if they are the oldest stores purchased. They will redo them to the point of making sure the bathrooms are up to the utmost standards," said Bernard Sosnick, a retail analyst with Fahnestock & Co. "Their prices are very competitive.

Other Kohl's trademarks include a limited amount of merchandise but extensive selections of each style, color and size. About 80 percent of their merchandise is branded items like Dockers, Levi's and Nike sold at lower prices points than normally found at big department stores.

Kohl's started as a small Midwestern department store company in 1962 by the Kohl family in Milwaukee. In 1986 it was purchased by senior management, which took it public six years later.

It has grown in number of stores by nearly 20 percent every year and is now in 32 states and moving westward. "We believe there is a significant growth opportunity in California," said Kohl's spokeswoman Susan Henderson.

Sales battle

That shopping experience has helped the Wisconsin company increase its same-store sales, mostly at the expense of other wellknown retailers.

For the year through Oct. 5, Kohl's comparable store sales were up 6.9 percent, while Federated's fell 2.9 percent and May's fell 4.6 percent. To date, Kohl's stronger sales figures have helped to lower its expense ratio and keep gross margins relatively constant.

The Wisconsin chain is currently building a 650,000-square-foot distribution center in San Bernardino County that will be able to supply up to 100 stores in the area. Next year Kohl's plans to open 80 new stores, primarily in California, Arizona and Nevada. More are in the works.

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New Retail Rival

Kohl's, which is building a store in Torrance, above, plans a massive
expansion in the area.

Stock Price


Oct. 10, 2001  $49.45
Oct. 10, 2002  $51.75

Note: Table made from line graph