Kohl's Corporation History

Address:

N56 W17000 Ridgewood Drive
Menomonee Falls, Wisconsin 53051-5660
U.S.A.

Telephone: (414) 703-7000
Fax: (414) 703-6255

Public Company
Incorporated: 1988
Employees: 33,800
Sales: $3.68 billion (1998)
Stock Exchanges: New York
Ticker Symbol: KSS
NAIC: 45211 Department Stores

Company Perspectives:

Our mission is to be a value-oriented, family focused department store. Our goal is to offer our customers the best value in any given market. Our pricing strategy emphasizes value by offering attractive prices, and offering name brand merchandise in a department store atmosphere.

Company History:

Kohl's Corporation is one of the largest discount department store chains in the United States, with more than 230 outlets, primarily in the Midwest and Mid-Atlantic regions. Targeting middle income shoppers buying for their families and homes, 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.

Formed Out of BATUS

Management purchased the chain's 40 stores in 1986 from BATUS Inc., the U.S. 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 a U.S. subsidiary, BATUS Inc., and began to acquire retail department stores. Wisconsin-based Kohl's Food and Department Stores, purchased in 1972, was the British conglomerate's first acquisition in this arena. Within a decade, BATUS had the 19th 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 such as candy, sewing notions, and hard sporting goods in favor of higher margin goods such as 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 eight to ten 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.

Went Public in 1992

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. Construction on a second 650,000-square-foot distribution center was underway in Findley, Ohio, in 1993; completed in August 1994, this facility served stores in central Illinois, Ohio, Michigan, Indiana, Kentucky, Tennessee, and West Virginia.

Kohl's advanced toward the 120-store mark with the opening of eight new stores in 1992, expanding its geographical reach to Ohio. The chain added Iowa and South Dakota to its roster in 1993 and opened 11 new stores. Continuing its expansion, Kohl's opened 18 new stores in 1994, and 22 each in the following two years. Kohl's also continued to tinker with its store format, completing its phaseout of electronics in 1995.

To support a planned expansion eastward into the Mid-Atlantic region, the company built a third distribution center in Winchester, Virginia, which opened in the summer of 1997 with an initial capacity of 350,000 square feet (which was later expanded to 400,000). The Winchester center served Kohl's stores in New York, North Carolina, Pennsylvania, Virginia, Maryland, Delaware, and New Jersey. By 1998 Kohl's had stores in 22 states and the District of Columbia.

During 1999 the expansion emphasis was on the West, particularly Missouri and two new states, Colorado and Texas. To support its westward expansion, Kohl's in 1999 was building a fourth distribution center, a 542,000-square-foot facility in Blue Springs, Missouri, to handle 80 to 100 stores and to service units in Colorado, Texas, Kansas, Missouri, Nebraska, and central Iowa. On the management front, William Kellogg, who had served as chairman and CEO since 1979, relinquished the CEO position to Larry Montgomery in February 1999. Montgomery also continued as vice-chairman, a position he assumed in March 1996, and previously was executive vice-president of stores from February 1993 through February 1996. Also in early 1999 came the purchase of 33 stores previously operated by bankrupt Caldor Corporation. All but one of the stores was in the New York metro area, with the other in the Baltimore area. Kohl's planned to convert the Caldor units to the Kohl's format during 2000. The purchase was funded through the issuance of 2.8 million shares of stock.

From its emergence as a public company in 1992 to 1998, Kohl's nearly tripled its number of stores, while its revenues more than tripled, from $1.1 billion to $3.68 billion. At the turn of the century, Kohl's was moving toward becoming a national chain of between 500 and 1,000 stores. The South appeared to be the next targeted region, as the company in 1999 laid preliminary plans for its entrance into the Atlanta metro area market.

Kohl's Corporation History

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