Professor Thomas Barrett
June 25, 2014
INDUSTRY AS A WHOLE
In the United States alone, the retail sector includes over one million stores and accounts for four trillion dollars of revenue in fiscal year 2013. To allow for more a detailed analysis, the retail industry is broken down into subcategories including food and beverage retail, motor vehicle dealers, drug and cosmetic retail, and apparel and accessory retail. Apparel retail, the largest of these sectors, generates most of its profits from women’s clothing, which accounts for 53% of total revenues. Also of great importance is the retailers’ ability to keep up-to-date on the trends because “being behind on what’s hot can lead to losing sales, reputation, and leftover inventory” (“Retail…”). Kohl’s Corporation falls under the department stores category of retail, the main focus of this industry overview.
Department stores such as Kohl’s were hit especially hard during the Great Recession that began in December 2007 and ended in June 2009. During those 18 months, real GDP fell a whopping 8.9%, and the department store industry was adversely affected by the declines in household consumption.
Over the next five years, industry value added, which measures the Department Stores industry’s contribution to the overall economy, is projected to decline at 0.2% annually. Concurrently, U.S. GDP is expected to increase 2.1% annually. When industry growth is less than GDP growth, as in this case, the industry is said to be in a declining stage of its life cycle. Causes for this disparity can largely be attributed to the Great Recession, after which many companies have failed to adapt to changes in the retail environment. Indeed, post-recessionary trends suggest that consumers now compare prices with greater ease and take advantage of online retail alternatives.
Although Kohl’s is similar to its competitors (Macy’s, J.C. Penney, Sears, and Nordstrom) in that it offers only domestic retail locations, Kohl’s is the only retailer out of the five that does not provide international E-Commerce business services. Shipping only to domestically located destinations, Kohl’s is particularly vulnerable to deteriorations in the U.S. economy, perhaps more so than its competitors.
Along with its competitors, Kohl’s Corporation must be careful in growing its E- Commerce business because the online medium (which is marked with shipping costs, lower margin merchandise, and expensive investments for growth) can unfavorably yield lower profits than can the retail stores. In an effort to counteract this trend, Kohl’s Corporation remains committed to growing its exclusive and private brand sales as a percentage of total sales. In 2011, the “penetration” increased approximately 240 basis points to 50.3% of total sales for 2011. Among the new brand launches were Jennifer Lopez in the women’s, accessories, and bath & bedding departments and Marc Anthony in the men’s department. Kohl’s has found great success with its ELLE and Simply Vera: Vera Wang brands and is the exclusive U.S. retailer of Rock & Republic apparel (launched in early 2012). To keep up with the competition, Kohl’s competitors are introducing their own top brands. Sales of women’s clothing are the most profitable area in this sector - accounting for 53 percent of the total revenue. The industry is moderately concentrated and bigger stores have advantages of getting better deals from suppliers, but the individualized nature in which stores compete not simply on price but on type and style, of which there are many, leaves room for smaller stores to succeed as well. In addition, because of the nature of clothing, many stores market to specific demographics based on price and style. Trends are also particularly important here - being behind on what's hot can lead to losing sales, reputation, and leftover
