Kohl’s Pivots to Smaller Stores Amid Activist Investor Showdown

Kohl’s updated investors on its strategic plan, pushing smaller-store formats and a $2 billion sales goal with its Sephora partnership.

Ahead of its Investor Day call, Kohl’s announced its plans to open 100 smaller-format stores over the next four years, as well as its plan to continue growing its shop-in-shop partnership with beauty retailer Sephora. Kohl’s previously announced plans to add 400 more Sephora locations within its stores, with the goal to reach 850 locations by 2023. 

The retailer is also aiming to increase its digital business to $8 billion, roll out self-serve buy online, pick up in-store (BOPIS) to all stores in 2022, as well as expand its retail media business, Kohl’s Media Network.

The updates come as Kohl’s has faced increased pressure from activist investors. Macellum Advisors, which owns less than a 5% stake in Kohl’s, has pushed for a new board of directors. At the same time, the company recently turned down two acquisition bids that would have taken the retailer private. 

“Kohl's is undergoing a significant transformation of our business model and brand to be the retailer of choice for the active and Casual lifestyle. We have fundamentally restructured our business to drive sustainable and profitable growth, while providing a strong return to shareholders,” Michelle Gass, Kohl’s CEO, said in a statement. “We have laid the foundation for our winning strategy and have started to implement key initiatives that will scale and accelerate our growth in the years ahead.”

The strategies could help quell investor fears that the company isn’t reaching its full value under current leadership and stave off calls for a sale. However, shares closed down 13% on March 7 following release of the strategy, CNBC reported. Kohl’s also shared its long-term financial framework, with the expectation of low-single digits sales growth; a 7% to 8% operating margin; mid-to-high single digits percent EPS growth; and operating cash flow of more than $5.5 billion and approximately $2.5 billion of free cash flow during 2022-2024.

“We delivered record EPS in 2021 and achieved our operating margin goal two years ahead of schedule, reflecting our progress to drive more profitable growth,” Gass said. “The initiatives we are announcing today, including plans to drive the Sephora business to $2 billion, are further positioning us for long-term value creation.”