Dive Brief:
- Kohl’s is revamping how it manages its inventory after net sales fell more than 7% in FY2022 and margins shrunk by nearly five percentage points.
- The discount department store chain is committed to shrinking its inventory plan by a percentage in the mid-single digits after the company “got out of control” with its purchasing in 2022, CEO Tom Kingsbury told analysts.
- With the reduction, Kingsbury added that Kohl’s would “operate so that we have plenty of room to chase receipts,” meaning the retailer will seek additional inventory as needed to meet customer demand.
Dive Insight:
Kohl’s financials tell the story of why the company is making changes to the flow of product through the business. Sales were down more than 7% for both Q4 and the full year, and operating profit fell by more than 85% year over year in 2022.
“During the past three months, I have spent a significant amount of time focused on merchandising, including establishing stronger inventory control processes,” said Kingsbury, who took over as Kohl’s chief executive starting in December. “We are putting a spotlight on fresh receipts and on driving turnover.”
Along with planning for less inventory, Kingsbury said the company would “adjust how we mark our goods, getting rid of excess inventory or slow-selling items on a more even flow throughout the year, instead of waiting until the end of a season.”
Dan Plas, Kohl’s SVP for enterprise digital and e-commerce, described the company’s new approach to receipt management as “being able to sense and respond, read and react to where consumers are and then quickly partner with our supply partners” to meet demand with product.
Plas, speaking during a panel at an American Apparel & Footwear Association summit in Washington D.C. last week, said that retailers got “stuck with inventory” last year, and Kohl’s is looking to be more “rigorous” and “disciplined” in inventory management going forward, including by working with suppliers.
“That does not mean we will not respond to the consumer,” Plas added. “As we’re going to become more nimble and more responsive to what our customers tell us through that sense-and-respond mentality, we’re going to be looking for our very good partners to be doing the same — shortening up lead times, having product available to respond.”
Kohl’s has already moved to clear inventory more aggressively. The retailer took a hit to its gross margin amounting to 750 basis points in Q4 as a result of clearance markdowns.
Although inventory was up 4% year over year at the end of Q4, it was down 10% compared to 2019, which CFO Jill Timm said was in line with the company’s sales decline over that period.
Telsey Advisory group analysts noted that Kohl’s lower inventory levels at the end of Q4 were an improvement from growth over 30% and even over 40% in recent quarters. The analysts described new management as “aggressively” clearing inventory and “moving closer to right-sizing balances.”
Jefferies analysts called Kohl’s inventory position at the end of the year “greatly improved” and said that the “tighter position now sets up the company well to avoid incremental markdowns” and increase its margins.
