The 2-Minute Thought: The Lesson from Retail Stocks: Patience

The stock of Kohl’s Corporation (KSS), the operator of Kohl’s department stores, fell from $79 in early 2015 to $36 by mid-2016.

For anyone who got interested in the stock as it was falling, it’s been a frustrating period.  Kohl’s has had its ups and downs, but the news has been generally dismal.  The stock mostly has bounced around the high $30s and low $40, and much was said about the demise not just of Kohl’s -- but all of retail. 

Then surprise, surprise: In the last two months, Kohl’s stock soared back to $64 from the low $40s.  Kohl’s had its best holiday performance since 2001.  Total and comparable sales increased 6.9% over last year, and the company raised fiscal 2017 earnings guidance to $4.10 - $4.20 from $3.72 - $3.92.

CEO Kevin Mansell said that macro tailwinds certainly helped.  We’ve lapped the presidential election, the weather has been good, and the consumer seems to have more money in her pocket.  All of that is good.  But Mansell also says that we’re finally seeing the results of all the actions the company has taken to drive traffic, to create great customer experiences, and to personalize connections.

One lesson here is that patience pays off.  Retail wasn’t dead – but it sure took a lot of patience and willpower to shut out the awful news flow on how doomed it was.  

Now that the consumer is ready to spend a little more, lo and behold, comparable sales at many retailers started turning positive over the holidays.  At the recent ICR Conference for consumer and retail stocks in Orlando, the general timbre was optimistic, as in “We feel more upbeat than we have in several years.” 

The other lesson is that retail is a viable businessif you’re ready to play by the new rules of engagement.  The new rules recognize that customers have smartphones, that Amazon is a frightful force, and that customers are more demanding than ever when it comes to good value and unique experiences. 

The retailers that recognized the new rules of engagement early are seeing results.  That includes Kohl’s.  And now, even the laggards recognize the world has changed.  Most struggling retailers are in the midst of a transformation strategy that involves:               

  • Improving omnichannel presence and making investments in technology and digital fluency
  • Personalization, often through data analytics and loyalty programs
  • Creating meaningful customer experiences and reinvigorating merchandising
  • Optimizing and diversifying real estate portfolios
  • Cutting costs, reducing inventory, and improving operational efficiencies

For the retailers who caught on early, it took a lot of patience and persistence.  Kohl’s made major technology investments before it started seeing results – and now, it continues testing everything from mobile point-of-sale to a partnership with Amazon.  CEO Mansell says the company cannot be afraid to try new things.  At the same time, he says that the bricks-and-mortar stores remain the company’s greatest asset – and its greatest opportunity.