Kirkland’s CEO Woody Woodward describes 2018 as a “challenging year.”
Despite the fact that the home décor retailer saw e-commerce continue to grow, that growth was negated by poor sales in-store, leading to a modest increase in overall revenue for the year.
While the last year was less than stellar for the brand, it continues to invest in both its infrastructure and technological prowess to grow its digital sales and provide its shoppers with the omnichannel experiences they crave.
“Despite the tough year, we’re optimistic that we can achieve improvements in the back half of this year and roll forward,” Woodward said on a recent earnings call with analysts. “We are moving quickly on a range of initiatives that will improve the business.
“It starts with fast tracking our transition by building on the work begun in 2018 to enhance the customer experience and improve efficiency. For example, buy online and pick up in store is driving a better omnichannel experience, in its early stages in terms of its potential impact on revenue and profitability. The same can be said of markdown and promotional optimization. We captured some low hanging fruit in 2018 as it relates to de-stacking promotions, but there's more value to come from leveraging analytics to improve promotional efficiency.”
The key for the retailer in 2019 and into the future is its ability to improve its merchandising and operations to better align with the needs of the modern shopper. The crux of Kirkland’s improvement plan is focuses on product revitalization and reinvention, merchandise margin expansion, omnichannel growth, and supply chain optimization.
Below is a quick look at each of these vital areas of improvement and investment for the brand.
Product Revitalization and Reinvention
Kirkland’s is reorganizing its merchandise approach with a renewed focus on wall décor and in-house design. The retailer is also laser-focused on elevating quality across its full assortment to greater align with its vendors.
“We believe that design, price and quality, are bundled together in how the consumer views value,” said president and COO Michael Cairnes. “The reorganization enables us to lean in on the categories we want to turn around and support new categories. It will ducktail into our direct sourcing initiatives, enable us sustain our private brands and ensure success of our new product categories.”
Merchandise Margin Expansion
Kirkland’s technology team is working to implement a new suite of forecasting tools to align marketing coupons and merchandise promotions to provide better insight into its overall margin.
“We have added analytical muscles to identify the most productive promotions as well as root out the inefficient promotions and take a more aggressive approach in de-stacking our promotional cadence,” said Cairnes.
In addition, the retailer is embarking on a direct sourcing initiative to cut sourcing costs as well as expand its network of high-quality goods.
“We have integrated direct sourcing as part of our process roadmap and begun collaborating with our merchandise team,” Cairnes said. “My prior experience in this space has told me that the hardest part of direct importing is not the sourcing aspect itself, it's the change management with the buying team.”
E-commerce was a bright spot for the home décor retailer in 2018, as it saw sales increase by 22%.
Kirkland’s breaks its digital business up into three categories: pick-up in-store, vendor direct fulfillment, and direct to consumer. And it has aggressive goals for 2019 and beyond for each.
The retailer continues to scale its buy online, pick-up in-store capabilities. It started the offering with around 250 available SKUs and has increased the available items to more than 1,000, and 15% ($4 million) of its total e-commerce sales are credited to BOPIS. In Q3, approximately 45% of its e-commerce sales were fulfilled in stores.
In the vendor direct arena, Kirkland’s grew its offering by 70% last year and is currently working with more than 100 vendors. To help streamline the process and make the service even more profitable, the retailer is developing a new vendor direct software platform with should be fully implemented by Q3.
Kirkland has seen significant growth on the direct-to-consumer side of the house and is looking for options to augment its Jackson, TN fulfillment center. Currently the Jackson facility is the retailer’s only direct-to-consumer facility.
“We're evaluating our options to get our distribution closer to the customer,” said Cairnes. “Meanwhile we continue to make exciting enhancements to improve the aesthetic and streamline the navigation capability.”
Supply Chain Optimization
Kirkland’s, like the rest of the industry, continues to reevaluate its supply chain capabilities in the face of rising pressure to deliver product at the ever accelerating pace of retail.
“In 2018 we accomplished something to mitigate these pressures by relaying out the current DC operations at 20% more capacity, and we improved our utilization and streamlined our routes,” said Cairnes. “We're now putting in place a more permanent and systemic solution that will have material impact.”
As part of the initiative Kirkland’s will be opening a third-party logistics distribution center in Texas by the end of Q3 serving approximately 100 stores. The retailer reports that the implementation of the 3PL should trim its budget by more than $1 million annually.