Department stores are dying a slow and painful death at the hands of e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN). While big names like Macy’s Inc (NYSE:M) have been taking most of the heat, Kohl’s Corporation (NYSE:KSS) is navigating the same choppy waters. KSS stock has been able to avoid some of the pitfalls that Macy’s is struggling with, but the fact remains that the company has yet to figure out a way to assure its place in the future of retail.
Source: Hailey Pollard via Flickr
One major thing that Kohl’s has going for itself is its physical locations.
Counting a retailer’s brick-and-mortar stores as a positive is rare these days, but for KSS stock, that’s true. Unlike its other department store competitors, Kohl’s locations are found in suburban strip malls. That means the company hasn’t been hurt by falling foot traffic in traditional shopping malls.
According to CEO Kevin Mansell, 80% of Americans live within 15 miles of a Kohl’s. That means come back-to-school shopping season, KSS may be able to grab some market share because other stores have been rapidly decreasing their physical footprints. Kohl’s, on the other hand, has said it would be better to shrink its store sizes, cut down on inventory and focus on only a few brands rather than close locations.
Another Reason KSS Stock Is Decent?
Speaking of brands, Kohl’s has been shifting its focus toward big name brands that will draw customers in. Under Armour Inc (NASDAQ:UAA) recently made a deal to sell athleisure gear and sneakers in Kohl’s locations, a move that has been mutually beneficial. For KSS, the addition of UAA products has increased customers’ interest in the department store’s entire range of fitness gear.
Now, with the back-to-school season ramping up, Kohls is planning to offer Clarks shoes at its locations. This is likely to be another boon for KSS stock as the specialized shoes will probably draw in customers doing their back-to-school shopping.
The other big reason Kohl’s focus on getting famous brands into its aisles is import is that it gives people a reason to shop in a department store. Part of the reason that shoppers are abandoning big box stores is that they feel antiquated. However, offering a selection of hot items could help boost the company’s image.
When you look at these factors, KSS stock doesn’t look like a terrible buy. That’s especially true when you consider that last quarter’s results showed that margins increased by 83 basis points from the year previous.
Then there’s the firm’s 5.2% dividend yield, another reason some investors are taking a chance on Kohl’s stock.
However, when you look at the bigger picture you see that KSS may be top-of-class when it comes to department store retailers, but you’re really just picking a winner from a losing category. Back in 2014, Kohl’s revealed its “Greatness Agenda”– a plan designed to help the firm boost sales. Despite some success in 2015, that plan has been failing ever since. Quarterly growth rates have been declining since the first quarter of 2016 as consumers cut down on spending on clothing and accessories and do more shopping online.
Brick-and-mortar stores are in trouble and even though Kohl’s is doing better than some of its peers, the firm hasn’t proven that it has found a solution to the Amazon effect. Picking up the straggling shoppers from peers that are being forced to close their doors is not a growth strategy, it’s a survival tactic.
I think KSS is on the right track by getting famous brands in its stores, but as I mentioned before, it may be a matter of time until companies like UA decide to offer their goods on Amazon as well.
The Bottom Line on Kohl’s
If you want to add a department store to your portfolio, KSS is the one to add. Kohl’s earnings are due out on Thursday and if the firm is able to out-do Macy’s, the stock may see a bump.
However, I think in the long-term, buying a department store stock now is a huge gamble. It’s an unstable industry and although Kohl’s is keeping its head above water, I’m not convinced that the firm has any growth potential for the future. If you must buy a retailer, consider Home Depot Inc (NYSE:HD) or Wal-Mart Stores Inc (NYSE:WMT), both of which appear to be beating the retail blues.
As of this writing, Laura Hoy was long AMZN.
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