Kohl’s Corporation

N54 W13600 Woodale Drive
Menomonee Falls, Wisconsin 53051
U.S.A.
(414) 783-1640
Fax: (414) 783-4043

Public Company
Incorporated: 1988
Employees: 12,890
Sales: $1.01 billion
Stock Exchanges: New York
SICs: 5311 Department Stores; 6719 Holding Companies

Kohl’s Corporation is one of the 12 largest department store chains in the United States, with 90 outlets in Wisconsin, Minnesota, Illinois, Indiana, Michigan, Ohio, Iowa, and South Dakota. The number of stores in the chain more than doubled between 1986 and 1992, when management took the company private. The chain maintains low retail prices through low cost structure, limited staffing, and progressive management information systems, as well as the economical application of centralized buying, distribution, and advertising. This “Kohl’s concept” has proved successful in both small and large markets, and in strip shopping centers, regional malls, and freestanding venues.

Management purchased the chain’s 40 stores in 1986 from BATUS Inc., the American division of BAT Industries plc. The parent was formed when James Buchanan Duke, founder of the American Tobacco Co., expanded his U.S. tobacco empire to Great Britain. His encroachment on the British market sparked a trade war, provoking several British tobacco companies to join forces as the Imperial Tobacco Group plc. Imperial succeeded in squelching Duke’s British effort, then moved to invade the U.S. market. Taking the threat seriously, Duke negotiated a pact with Imperial Tobacco that formed the British-American Tobacco Co. Ltd. (BAT) in 1902 to manufacture and market the two companies’ blends and brand names. When the U.S. Supreme Court found that BAT was a monopoly, it compelled American Tobacco to annul its territorial agreement with Imperial and divest its interest in BAT. Imperial kept its 33 percent interest in the company until 1972.

Following a tobacco industry trend, BAT began to diversify in the 1960s, purchasing several famous perfume houses. In the 1970s, the company formed an American subsidiary, BATUS Inc., and began to acquire retail department stores. Wisconsin-based Kohl’s Food and Department Stores, purchased in 1972, were the British conglomerate’s first acquisition in this arena. Within a decade, BATUS had the nineteenth-largest retail holdings in the United States, including Gimbles, Saks Fifth Avenue, and Marshall Field & Co. BATUS invested expansion capital into two of its acquisitions, Saks and Kohl’s.

By the mid-1980s, BATUS had more than doubled the number of Kohl’s outlets to 34, but the chain was an anomaly in the upscale retail group with its “value-oriented,” “bargain-basement” positioning. BATUS sold the food segment of Kohl’s to Great Atlantic and Pacific Tea Co. (A&P), and began divesting its retail businesses in 1986. That year, Kohl’s management team took the chain’s 40 stores in Wisconsin and Indiana private. They spent the following three years refining the “Kohl’s concept”: moderately-priced, quality apparel for middle-income families.

The concept incorporated several factors. To set itself apart from mass merchandisers and discounters and become a specialty department store, over 80 percent of Kohl’s merchandise carried national brand names recognized for quality. Kohl’s also prided itself on stocking “narrow, but deep merchandise assortments,” especially where advertised specials were concerned. At the same time, Kohl’s eschewed the high-end and designer merchandise that characterized upscale department stores. The chain dropped low-volume, low-margin departments like candy, sewing notions, and hard sporting goods in favor of higher margin goods like linens and jewelry.

Kohl’s was able to price its merchandise more competitively by maintaining a low cost structure. The company kept consumer prices low and margins relatively high through lean staffing, state-of-the-art management information systems, and operating efficiencies that resulted from centralized buying, advertising, and distribution. Promotional and marketing partnerships with vendors also helped hold down overhead. For example, many of Kohl’s 200 vendors utilized electronic data exchange (EDI) to submit advance shipment notices electronically, which made ordering more efficient. The chain used aggressive marketing and promotional events to position Kohl’s as the “destination store.” Once customers arrived, management hoped the stores’ convenient layouts, clear signage, and centralized checkouts would encourage high store productivity.

Kohl’s most impressive growth spurt began in 1988, when management and The Morgan Stanley Leveraged Equity Fund II, L.P. formed Kohl’s Corporation and acquired Kohl’s Department Stores. That same year, Kohl’s purchased 26 MainStreet department stores from Federated Department Stores, which expanded the chain geographically into the Detroit, Minneapolis/St. Paul, Chicago, and Grand Rapids, Michigan, metropolitan areas. The chain continued to grow internally as well, posting 8 percent to 10 percent store-for-store gains in 1989, 1990, and 1991 despite a recessed retail environment. From 1988 to 1992, Kohl’s sales increased from $388 million to $1 billion.

Kohl’s did not stop there: in 1992, the corporation prepared for further growth by expanding and upgrading its distribution facilities, automating merchandise handling, and making a public stock offering to finance projected openings of 14 to 16 additional stores annually. Kohl’s enlisted the help of consultant group SDI Industries of Pacoima, California, to manage the automation and expansion of the chain’s ten-year-old distribution center. The center, which supplied Kohl’s stores with 98 percent of their merchandise, was expanded to 500,000 square feet, enough capacity to service 120 stores. Automation was achieved at a cost of $9.7 million. Completed in 1993, it encouraged higher productivity and lower turnaround time, and allowed vendors to send advance ship notices electronically and to pre-ticket merchandise. A second 650,000-square-foot distribution center was under construction in Findley, Ohio.

Kohl’s advanced toward the 120-store mark with the opening of eight new stores in 1992, expanding its geographical reach to Ohio. While the chain added Iowa and South Dakota to its roster in 1993, management planned to open most new outlets in existing and neighboring markets to continue to take advantage of advertising, purchasing, transportation, and other efficiencies that ensued from its regional focus.

Principal Subsidiaries

Kohl’s Department Stores.

Further Reading

Arbose, Jules, and Daniel Burstein, “BAT Moves beyond Tobacco,” International Management, August 1984, pp. 17–20.

“BATUS Battles Chilly Retail Climate,” Chain Store Age General Merchandise Trends, June 1985, p. 62.

Brookman, Faye, “Kohl’s Updates DC,” Stores, January 1992, pp. 142, 144.

“Earnings Soar at Kohl’s in the Third Quarter,” Daily News Record, December 18, 1992, p. 10.

“Kohl’s First $1 Billion,” Discount Merchandiser, March 1993, p. 12.

Robins, Gary, “Lin Allison Keeps Kohl’s on the Leading Edge,” Stores, August 1991, pp. 54–58.

“Rain Falls on Gimbels’ Parade,” Chain Store Age Executive, August 1986, pp. 59–61.

Rublin, Lauren R., “Taylor-Made Portfolio,” Barron’s, June 22, 1992, pp. 16–20.

—April S. Dougal