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Building brand identity: Kohl’s carves Northeast niche

By Kimberly Pfaff

If Kohl’s executives could communicate just one thing about their company, it could probably be summed up in three words: We’re not Caldor.

A recognized retail leader in the Midwest and Mid-Atlantic states, Menomonee Falls, Wis.-based Kohl’s has built its name by offering quality, brand-name goods at reasonable prices.

Yet the family-oriented department store chain was a virtual unknown in the Northeast when it signed a $142 million deal last year to buy 33 bankrupt Caldor locations — 32 in New York, New Jersey and Connecticut, and one in Maryland.

This past spring, Kohl’s was busy opening those former Caldor locations in a rapid-fire expansion throughout the New York City tristate area. And as developers and consumers in the region are quickly discovering, that’s where all resemblance between the two retailers ends.

With sales of $4.6 billion for 1999, Kohl’s has been steadily making its mark as a serious retail contender. Part of the company’s success, say industry executives, is that the chain doesn’t suffer from an identity crisis. It knows exactly what it is: a value-oriented, family-focused department store. And at a time when other retailers are experimenting with new formats and rethinking tried-and-true merchandising strategies, Kohl’s simply sticks to its niche. Company executives declined to comment for this article.

“A lot of people talk about being in tune with their customer; Kohl’s succeeds,” affirmed Dan Hurwitz, executive vice president of Cleveland-based Developers Diversified Realty Corp., which operates 209 shopping centers in 39 states, and has worked with Kohl’s for years. “They know who they are, and who their customer is. When you’re that in sync with your customer base, and that balances with your merchandising strategy, it makes for a very successful merchandising formula.”

“They’ve studied history; they’ve looked at the high-growth periods of JC Penney and Mervyn’s, and they’ve gone back to those companies’ roots, at a time when those companies have abandoned their roots,” noted Stanley L. Eichelbaum, SCMD, president of Marketing Developments, Cincinnati, a consulting firm.

Targeting middle-income consumers, the company offers fewer departments than traditional, full-line department stores, focusing instead on apparel and shoes for adults and children, home accessories, housewares, jewelry and soft goods such as sheets and towels. And Kohl’s features big-name brands not typically carried by discounters, such as Nike and Levi’s, and sells them for less than department stores.

So far, the numbers are good, too. For the past four years, the company has enjoyed earnings growth over 30%. And Kohl’s total first-quarter 2000 sales increased by 35% to $1.2 billion over the first quarter of 1999, while April same-store sales rose 8.4%.

And the company, which had about 260 stores at the end of 1999, primarily in the Midwest and Mid-Atlantic, plans to expand to more than 300 stores across the country by the end of 2000. This past spring, the focus was primarily on opening the former Caldor locations, as well as new stores in the Dallas/Fort Worth; St. Louis; and Rochester, Minn., markets. In the fall, Kohl’s will open approximately 21 additional stores, mainly in existing Midwest and Mid-Atlantic markets. At the same time, the store is remodeling existing units in certain locations.

But can the Kohl’s price/value equation play as well in the Northeast and other areas as it has in the Midwest? Industry watchers say the answer is yes.

“Their appeal is almost universal,” according to Eichelbaum. “They specialize in branded merchandise at an exceptional value, with intense marketing and promotional pricing. They’re doing the basics well, and they’ve proven themselves quite adept at achieving very high levels of performance.”

And Kohl’s is quickly managing to impress its newest developer partners in the process. National Realty and Development Corp., for example, which has 80 shopping centers, primarily throughout the Northeast, is a new Kohl’s partner. The Purchase, N.Y.-based firm recently opened four Kohl’s locations in New Jersey and Connecticut and is under construction with another store in Pennsylvania.

“They’re an excellent retailer,” said Jerrold Bermingham, managing director of National Realty and Development. “It’s very exciting, the kind of growth that they were able to take on in such a short period of time in the Northeast.”

Moreover, say shopping center developers, Kohl’s distinct formula appears to be adaptable to a variety of retail settings.

“The Washington, D.C., market is difficult to get into, particularly for someone with a large building footprint,” related Paul Weinschenk, vice president of The Peterson Cos., Fairfax, Va. “The Kohl’s locations have all been strong. We have them primarily in power centers on well-trafficked local roads, and/or interstates. That’s gone very well. We’ve also put them into more of a lifestyle, pedestrian-oriented setting, where they have two stories with a parking garage.”

Judging from the firm’s track record and the positive consumer response in new markets, the only Caldor comparison Kohl’s is likely to encounter now will probably echo that of Bermingham at National Realty and Development, who noted: “Kohl’s is going to do much better at drawing a nice demographic to our shopping centers than Caldor’s did.”