New kid on the block
Jennifer Marks -- Furniture Today, March 10, 2003
It's graduation day for Kohl's. Seemingly unstoppable and incapable of making a misstep, the mid-price retailer of apparel and home goods has made its long-awaited entry into the California market.
Not since Target arrived in the Northeast in the late 1990s has there been such speculation about the potential ripple effect of a single retailer's expansion.
For the past two years, that speculation has focused most heavily on Mervyn's, which operates 124 stores in the state — nearly half its store base. Although Target Corp. execs maintain that its mid-tier format has nothing to fear from the Kohl's entry, Mervyn's has been working to refine its merchandising formula over the past year, and also is making a more concerted effort to court Hispanic shoppers.
However, the situation is not as bleak as it could be. Were Mervyn's a standalone chain, the threat of Kohl's spreading stores across its home state would be much more ominous. But Target Corp. has proved time and again its commitment to the format. When Wall Streeters howled for Mervyn's head in the '90s, Target stood fast.
It's not likely to alter its position now.
For Sears, the expansion of Kohl's into California widens the battlefront in an ongoing struggle for market share.
Sears is still struggling to right its home, apparel and accessories strategies — literally its soft underbelly. Sears also is working to complete the sprucing up of its stores, some of which are mighty dingy.
Kohl's is sweeping into California with a base that has largely been newly constructed and, on a regional basis, Sears is likely to suffer by comparison.
Also likely to feel the impact is Strouds, particularly the retailer's 20-unit outlet segment. Positioned against Mervyn's, JCPenney and the boxes, these stores offer a blend of sharply priced branded merchandise and opportunistic buys. And while Strouds' full-line stores vie for department store customers, the outlets target the middle-market, price-driven consumer — who also falls into the Kohl's demographic. Further, with its financing constrained, Strouds isn't in a position to make dramatic shifts to counter a Kohl's-inspired erosion.
In the department store realm, Gottschalks will also have much at state as Kohl's steadily moves up the coast. Its 67-store base relies heavily on California, where it operates 39 doors.
A month ago, the company announced a five-point plan to strengthen its financial position that includes paring capital expenditures, whacking $15 million in SG&A expense and boosting private label by 15 percent to $80 million, or about 12 percent of total sales.
It will have to scramble to right its operations before Kohl's hits its northern California markets.
No one yet knows for sure exactly what the Kohl's factor will be. But rest assured, in a no-growth economy it will pull its business out of someone's hide.
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