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(CNN Business) --
In 2018, Kohl's was a bright spot in the beleaguered department store sector.
Sales were growing, Kohl's stock price was booming, and new CEO Michelle Gass was winning widespread praise for her creative approach, including partnering with Amazon to offer free returns at Kohl's stores.
Of the three largest department store chains in the United States, Kohl's, Macy's and Nordstrom, Kohl's seemed to be in the strongest position.
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No longer.
Currently Kohl's is in crisis.
The chain's sales are lower than before the pandemic, despite strong consumer spending and its rivals enjoying big profits.
Activist investors circle Kohl's and demand leadership changes.
A sale of the company could be on the horizon.
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"We see a company that has lost its way," said Jonathan Duskin, a managing partner at Macellum Advisors, an activist investment firm that has become Kohl's third-largest shareholder.
Kohl's is under heavy pressure from investors and retail rivals.
Macellum and a group of activist investors bought a stake in Kohl's last year.
The group reached an agreement with Kohl's in April, but Macellum has recently revived his effort to overhaul Kohl's due to continued share price weakness and market share losses.
Kohl's "should be better than Macy's, not worse," Duskin said.
"We see a lot of initiatives that sound good, but never actually result in growth."
In a statement, a Kohl's spokesperson criticized Macellum, saying the firm was "using an ill-informed, shifting and hollow narrative" to push changes that would not improve Kohl's and would result in "unqualified and inexperienced" board directors. .
The spokesman said Kohl's has made "substantial progress in transforming our business and positioning the company for long-term success."
"We're already delivering," the spokesperson added, noting the company's record earnings in 2021, operating profit margins achieved two years ahead of schedule and an increase in the company's quarterly dividend.
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Kohl's is attempting another makeover to shake things up, but its success is far from guaranteed.
fighting the tide
With more than 1,100 stores in the United States and about $19 billion in annual sales, Kohl's is the largest department store chain in the United States.
The department store sector has been in structural decline for years due to pressure from Amazon, growing big chains like Walmart and Target, and discount clothing stores like TJMaxx.
Companies like Sears, JCPenney, Neiman Marcus, Barney's and others have filed for bankruptcy in recent years.
Department stores, including Kohl's, have been slashed in price by discount players at the bottom, and prestige by luxury stores at the top, said John Fisher, senior professor at Boston College's Carroll School of Management and former CEO of Saucony sneakers.
"It's hard to be unique," Fisher said.
"I think Kohl's is stuck right now because of the death in the middle."
Kohl's CEO Michelle Gass has been called one of the most innovative executives in retail.
Kohl's has lost about 17% of its market share since 2011, mainly due to discount retailers like TJMaxx, as well as Amazon, according to UBS.
"[F]orces such as consumer migration to the Internet and value preference have contributed to this erosion," UBS analyst Jay Sole said in a recent report.
"This is likely to continue after the pandemic."
Since Gass, a former deputy director for Howard Schultz at Starbucks, took over as CEO of Kohl's in 2018, the company has tried various approaches to attract customers and avoid competitors.
In addition to the returns partnership with Amazon, Kohl's expanded its sportswear business with brands like Nike and Under Armor.
Kohl's has also downsized a handful of stores and leased the extra space to Aldi and Planet Fitness, made a bigger play for millennials with new brands like PopSugar and, more recently, opened Sephora beauty stores inside Kohl's.
These strategies have not led to significant improvements.
Kohl's has improved its sports business and other areas, but its womenswear business has slumped.
In 2018, sales increased 0.7% from the previous year.
In 2019, they fell 1.2% before falling 20% in 2020 due to store closures and restrictions due to the covid-19 pandemic.
Last year, after stores reopened and shoppers refreshed their wardrobes, sales rebounded 23% but were still below pre-pandemic levels.
Competition has gotten fiercer in the four years since Gass took over and "a lot of Kohl's stores feel tired," said Neil Saunders, managing director of retail sales at GlobalData.
"It's been very easy for customers to switch from Kohl's to others that offer something better."
And the brand partnerships with Amazon and Sephora don't address the core issues, he added.
"Kohl's needs to look to improve its own brand rather than relying on others to improve it."
Is a sale coming up?
For the past several months, activist investors have been pushing for changes at Kohl's.
One company, Engine Capital, urged Kohl's to spin off its e-commerce business from its stores or find a buyer to take the company private.
"Even the most patient long-term shareholders cannot stand the punitive underperformance and perpetual value disconnect seen at Kohl's," Engine Capital said in December.
A month later, Macellum Advisors said it would nominate a slate of new board members at Kohl's because Kohl's board and leadership "spent another year mismanaging the business."
Private equity firms also made offers to buy Kohl's, which the company rejected.
To combat the pressure, Kohl's last week unveiled plans for a "complete reinvention of our business model and brand" at an investor day.
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Kohl's said it would add Sephora mini-stores to about 75% of its 1,100 U.S. stores, open 100 new locations at half the size of its traditional outlets over the next four years, and grow its popular Kohl's Cash rewards program. to 7.5% on purchases, compared to 5%.
Kohl's also introduced new strategies for growing online, including self-service for pickup and returns.
"We are evolving our position from a department store to a lifestyle concept more focused on the active and casual lifestyle," Gass said in a presentation.
But for Macellum Advisors' Duskin, the plan was "disappointing."
He believes the strategy won't significantly change the way consumers view Kohl's, saying it's time for a new board and possibly a new CEO.
Kohl's hasn't fully taken advantage of the fact that its stores are located far from traditional malls, which are losing foot traffic, he said, and questions whether the investment in Sephora is worth it.
Kohl's said last week that it has engaged more than 20 potential buyers for the company, a sign of strong interest.
Hudson's Bay Co., which owns Saks Fifth Avenue, is also considering an offer, Axios reported Wednesday.
Kohl's board is in "ongoing dialogue with potential bidders" and will compare any offer to its own "compelling independent plan," a spokesman said.
Duskin expects Kohl's to accept a takeover offer, he said.
"This company can be easily changed."
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