Kohl's Aims for the Stars

Recently, the department store chain Kohl’s found itself in a situation that, though perhaps not a crisis, was certainly serious. After two decades of rapid growth, during which revenue soared from $1 billion to $19 billion — and even after rebounding nicely from the shock of 2008 — the company hit a wall in 2011. Sales stagnated, and net income fell sharply.

The reasons were clear: As Kevin Mansell, Kohl’s chairman, CEO and president, has explained, consumers have become more price-sensitive overall and have been spending less on categories in which Kohl’s was traditionally strong, including apparel. In addition, they’ve become used to finding deals on the Internet instead of just walking into a local store.

Recognizing that the organization needed to adapt better to this new environment, Kohl’s leadership team undertook a series of multiday, off-site meetings in 2014 to discuss how to reorient the company. Mansell says, “The dialog focused on what obstacles were keeping us from getting to the results we wanted to get to. If we could all agree on those, we could address many of them and … get ourselves on a growth path.”

The plan that emerged from those meetings, which Kohl’s calls its Greatness Agenda, was intended to be a multiyear effort with periodic adjustments. Mansell emphasizes that, in a world where shareholders are increasingly “short-term focused,” getting buy-in from the board for a multiyear plan was critical. To encourage innovation, he says, managers had to be free to propose projects that took time to bear fruit — or even to fail occasionally.

Building on strengths
Rather than trying to create a fundamentally different company, Kohl’s plan built on strengths the company already had. True, there have been adjustments to the product mix, such as an increased emphasis on health and wellness products across the apparel, footwear and home furnishings categories. There are ongoing experiments with outlet stores and smaller-market stores. But, on the whole, Kohl’s is trying to increase sales of its existing products to its existing demographics. Its core initiatives center on providing better value for customers and making the shopping experience easier, more engaging, and more personalized. Mansell says, “Everything we consider is determined by what customers told us through transactions or through research with them.”

At its inception, the plan featured five “pillars” (principles), seven “bold moves” (major new initiatives) and 20 “essential moves” (changes necessary just to keep from falling behind). While the pillars remain the same for the long-term, today, the plan has evolved to include 10 bold moves and seven essential moves. What keeps this vast array of projects from becoming unmanageable, Mansell says, is that they are all interrelated. For example, he explains, “having a unique assortment by store” — part of one of the bold moves — “doesn’t work unless we’re world-class in digital, unless we can price with insight-driven pricing, and unless we have in-store experiences that are exciting. All these things connect to each other. … So the team that’s working on a particular move has to be cognizant of the others.”

An omnichannel strategy
Ratnakar Lavu, executive vice president for digital technology and Krista Berry, executive vice president, chief digital officer,  are at the helm of several of Kohl’s major initiatives At present, the company’s omnichannel strategy, including new technologies, occupies much of their attention. Kohl’s has integrated its store and online experiences so thoroughly that there is now no clear distinction between store sales and e-commerce sales, and they are no longer reported separately.

Lavu says, “We’re thinking about every touchpoint the customer has with the brand — Kohls.com, mobile apps, even how our ads show up on Google. … The guiding principle is that it should be seamless, simple and highly engaging. So if you search a keyword at Kohls.com, it will give you the top sellers first, and you can click and go straight to the product. In the mobile app, the top-searched keywords will show up. We’re making it easy to add items to the cart and check out. If you’re logged in, we know all the offers available to you.” The digital shopping cart now works across multiple devices, so a transaction can be started on one device and completed on another.

Shipping options for online sales have also been improved. In addition to next-day,  two-day and regular shipping, customers can choose to pick up an item in a store — this entitles them to an incentive to buy another item in the store, which about 20 percent do — and same-day delivery is being tested in certain markets.

Recognizing that customers use their mobile phones inside stores as well as at home, Kohl’s added a new store mode to the mobile app. This allows a customer in a store to get details about that store’s inventory rather than having to walk up and down the aisles searching for items. Once the customer decides to buy an item, the app gives her a personalized price for the item, after applying all relevant discounts.

Another digital innovation is the introduction of enhanced mobile payment options. Stores began accepting Apple Pay in fall 2015, and customers can add their Kohl’s charge cards as a form of payment within Apple Pay. Visa Checkout is now available on Kohls.com and on the mobile app. And gift cards can now be saved to the mobile wallet.

Customers appreciate the new features of the mobile app, which has now been downloaded more than 9 million times and boasts a 4.5 star rating.

Personalizing messages and pricing
Kohl’s personalization initiative is also a priority, which relies on Big Data analytics. Crunching vast quantities of customer data makes it possible to send specific, relevant messages to customers via email and snail mail. (The messages aren’t yet unique, but they are highly segmented.) In addition, Kohl’s is testing the delivery of personalized offers — that is, discounts on products customers actually want — to mobile wallets. There are still more possibilities for personalization, including ever-more-granular segmentation. “We’ll continue to scale personalization over the next year or so,” Lavu says. “We’ll invest in the data and the analytics and start leveraging that to create personalized touchpoints.”  

Revamping loyalty
Much of the data that drives the personalization effort — aside from the basic transaction database — comes from Kohl’s revamped loyalty program. For many years, Kohl’s used charge cards to reward customers and to understand more about them; recently, it decided to broaden its loyalty program beyond those customers who could take advantage of the credit card. About two years ago, it began testing Yes2You, a rewards program that offers a $5 reward for each $100 spent, along with a variety of bonus offers. In the pilot markets, according to Will Setliff, Kohl’s executive vice president of marketing, Yes2You generated an extra two store trips and an extra $80 in sales per customer, per year, as well as an increase in the number of categories each shopper purchased. One interesting finding is that customers already highly engaged with the store became dramatically more engaged after joining the loyalty program; for those less engaged, the increase was less dramatic.

The program launched nationwide in fall 2014 as one of the company’s “bold moves,” and it now has 34 million members enrolled. “It isn’t just about the savings,” Setliff says. “Everybody and his brother has that. Customers have a strong emotional tie to the Kohl’s brand, unlike anything I’ve ever seen, and we wanted to amplify that through the loyalty program.” Setliff believes customers’ emotional connections begin in the stores, which have friendly and helpful associates and liberal return policies, and in the equally customer-friendly call centers.

One of Setliff’s experiments for amplifying customers’ emotional connections to the Kohl’s brand involves inviting loyalty program members to join affinity groups centered around their particular interests. Currently, wellness and fashion are the two primary topics, but other interests may be added. Affinity group members engage in online conversations about the topics of interest. In addition to moderating the discussion groups, Kohl’s offers members various nonfinancial rewards, such as first looks at new collections and chats with designers. “The emotional stickiness is great,” Setliff says. “We’re going to scale on this.”

In October 2015, about a year after the Greatness Agenda was launched, Mansell gave a presentation that summarized the initiative and its results to date. Associate engagement, he said, had improved greatly; three of the four teams had reached the “aspirational” goal of 90 percent, and the fourth team had made greater strides than any of the others. Customer engagement, already best in class, was holding steady. And most important, sales and traffic, which had fallen in the prior three quarters, had both moved positive over the past year.

What has Kohl’s learned from the experiment? The most important takeaway, says Mansell, is the value of internal communication in inspiring employees to carry out the company’s mission. He says, “We didn’t see the power early on of having a vision and a plan and the engagement that created.” 

Masha Zager is a New York-based Apparel contributing writer specializing in retail and business technology.
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