Kohl's Works on BOPUS and Inventories Amidst Slumping Sales

Department store Kohl's Corp. hopes to improve fulfillment from stores and mobile conversion, as well lower its inventory per store.
The retailer had a better-than-expected profit in fourth quarter 2016, helped by higher margins despite a 2.8 percent drop in sales. Comp sales decreased 2.2% for the quarter.
The company made progress on inventory levels; by year-end, overall inventory was down about 5% in dollars and 7% in units. Fall seasonal inventory was down about 25%, and spring forward transitional inventory was up about 9% within that total. This impacted metrics positively, including merchandise margin for the quarter and in-store and logistics expenses related to material handling.
Kohl's expects to lower inventory per store about 3% per year over the next three years, thanks to its improved supply chain focused on speed and localization initiatives. The retailer is also leveraging technology to increase the amount of inventory shipped from stores or picked up in stores to fulfill online demand.
"This is one of the most important initiatives in the company," said CEO Kevin Mansell.
"From a strength perspective, we made great progress last year on the management of our inventory levels and expenses across the company."
Mansell said Kohl's localization efforts now impact about 85% of its assortment and are having a positive impact on sales, as well as reducing inventory levels at the same time.
Kohl's will also invest some additional money on its fifth e-commerce fulfillment center and plans to open it in the back-to-school timeframe. The company expects the distribution center to be three times as productive as its existing fulfillment centers, thanks to a higher level of automation.
Omnichannel Woes and Wows
Mansell noted that the department stores had weak traffic all year, but the company expects omnichannel sales will continue to grow in the low double-digit range.
One-third of Kohl's digital sales units were either shipped from store or picked up in stores in the fourth quarter.
"Our ship-from-store capability enhancements, along with BOPUS enhancements, have improved the customer experience and leveraged the power of our store portfolio," Mansell noted. "We'll be aggressively marketing the BOPUS functionality option and ease this year, and expect the penetration to climb significantly in 2017."
However, he cautioned that the overall impact is "the brick-and-mortar stores will continue to probably do a little bit less," but noted that Kohl's thinks "having a big footprint is really important."
The company is beginning to see results of from its multi-year, multi-billion-dollar investment in digital technology, as online demand and fulfillment metrics improve.
"Online demand was up in the low-teens for both fourth quarter and for the year," he noted. "We also improved our shipping and fulfillment expenses as a percentage of digital sales, while increasing the speed to customer by half a day overall."
The company also gave insight into its mobile traffic, revealing that mobile devices account for over 50% of Kohl's digital traffic and 30% of its digital sales came from mobile devices for the year. The company said a lot of its ongoing projects are continuing to improve the conversion rate on the mobile side of the business.
"As most people, our conversion rate on a phone is a lot less than a conversion rate on a desktop. We want to make that as frictionless as possible," said CFO Wesley S. McDonald.

Additionally, Kohl's is still in the midst of its rollout of a new point-of-sale system, which it hopes will help associates in brick and mortar stores assist customers with looking at items in the store and online.

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