The Kohl's turnaround: all in a day's work.
Just a decade ago, Kohl's virtually owned Milwaukee. But the entry of warehouse stores into the market in the mid-1970s, followed by a misguided attempt to reposition the chain as discount-oriented, led to a severe erosion of sales. By the time its parent company, British American Tobacoo of the U.S., sold off Kohl's to A&P last October, the chain's market share had dwindled to 24% from more than 40%.
For its money, A&P got a company saddled with stiff labor costs, deficient service levels and a tarnished public image. The new parent's first move was to overhaul top management, beginning with the dismissal of 10 of the chain's 13 vice presidents and culminating with the appointment of Spearman to the presidency, making him the fourth to hold that post since Herbert Kohl resigned in 1979. Spearman spent 41 years with Colonial Stores working his way up from bagboy in executive vice president prior to joining Kohl's.
"In one fell swoop, $2 million was eliminated from the corporate payroll," says Jim Reik, Kohl's vice president of human relations and one of the three senior executives to survive. Nevertheless, Spearman and his new bosses were well aware that with sales shrinking as rapidly as the customer base, and losses running close to $1 million a month, it would take a lot more than a $2 million trimming to turn Kohl's around.
The main target was labor costs, and that situation was partially resolved at the time of the takeover as roughly 1,000 of the company's 3,200 employees elected not to stay with the newly formed Kohl's. As many of these employees were high in seniority, the result was a higher proportion of workers in lower salary brackets. What really allowed Kohl's to get back on its feet was the new three-year labor contract negotiated by A&P with the local union. Based on A&P's own Super Fresh Concept, employees accepted comparatively lower wages for the right to have a say in the running of the stores as well as a chance to earn a bonus for keeping labor costs below a predetermined percentage of overall operating expenses.
The strategy is paying off. Labor as a percentage of sales is currently running almost 4% lower than it was prior to the takeover, despite the fact that the company has increased the staff to 4,400.
While the reduction in labor costs played a major role in stemming the two-year flow of red ink, Spearman still faced the difficult task of winning back former Kohl's customers. After taking a close look at the chain's position in the marketplace, management determined that it was suffering in two key areas: front-end service and in the meat department, with the latter having a negative effect on Kohl's overall quality image.
Wasting little time, Spearman orchestrated a series of major changes. In the meat department, cases were reset, pork distribution was increased, ice-packed fryers were replaced by chill-packed and more stringent standards in meat processing were developed. And because of the savings already made in labor costs, Kohl's was able to boost its service levels while reducing prices up to 15% on some 2,600 items throughout each of its 61 stores.
All of the changes were introduced to the public in Mid-January under a new marketing umbrella called Kohl's II. (In the logo, the numeral is formed by arrows that point up for quality and down for prices.) The result: After six months, sales were up close to 20%, the customer count had swelled by 25% and the chain's market share had climbed to 31%.
Moreover, Kohl's re-emerging clout should be hastened even further by A&P's acquisition last month of 14 Eagle Supermarkets from Lucky Stores in the Madison, Wis. area. With collective sales in excess of $100 million, the additional units will push Kohl's total sales near--and possibly above--the $600 million level.
No one--least of all, Spearman--expects the competition to stnad idly by while shoppers march to a different store. Warehouse operator Pick'N Save is still the dominant chain in the metropolitan Milwaukee area and Sentry is a not-too-distant third behind Kohl's. Nonetheless, neither Reik nor A&P believes Kohl's would be in the positive position it's in today were it not for Spearman.
"He's an inspirational leader whose greatest attribute is high ability to lead by example," says Reik, adding that it's not unusual to find Spearman behind his desk at 4 a.m. and still there long after everyone else is gone. In between, much of Spearman's time is devoted to his zealous crusade against all that's bad and evil--in this case, sloppy service and negative thinking.
"My philosophy," says Spearman, "is you get out of life only what you put into it. Besides, I love the challenge."
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|Title Annotation:||Kohl's II Food Stores|
|Date:||Aug 1, 1984|
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