Gass Opens Up About Family Values, Kohl’s Innovation

Kohl's Corp. chief executive officer Michelle Gass took the reins of the $20 billion retailer in the midst of a market reshuffling fueled by e-commerce and digital giant Amazon and a fractious political climate that's left consumers emotionally exhausted.

Gass is approaching these and other challenges by doubling down on Kohl's raison d'être: providing value for the entire family in key areas such as activewear and wellness, while indulging her appetite for experimentation and cutting- edge technology.

"The premise, from the beginning, has been simple," Gass said. "It's all about serving the family." Gass said the framework for this strategy was laid by her predecessor, Kevin Mansell, who introduced to the company the Greatness Agenda, which asked, "Why do we exist?," she said. "To serve families."

The Menomonee Falls, Wisc.-based retailer took an if you can't beat 'em, join 'em approach to Amazon, partnering with the online behemoth to accept returns of purchases from the Seattle-based e-tailer at more than 100 stores. Kohl's has also been selling Amazon Echo and smart home devices at special stations in 20 units. "The partnership with Amazon is intriguing. It's still in the pilot phase. We know we're driving people into the store. It has to be good economically for both of us," Gass said.

"Every year, we get that much smarter, more agile and more creative," she added. "The premise from the beginning has always been about serving families with great value and savings, and building loyalty."

Kohl's juxtaposes powerful national brands such as Nike, which boasts the highest sales of any of the retailer's apparel brand partners, with private brands such as Sonoma Goods for Life, Croft & Barrow and Apt. 9. The three labels reportedly do $1 billion apiece in annual sales. House brands account for a little more than 40 percent of Kohl's total business. "The proprietary brands were struggling a bit and needed a catalyst for change," Gass said. "We reduced the timeline by 40 percent. We've taken not days and weeks, but months out of the process."

Sprinkled on top of the national and private label brands are longtime exclusive designer partnerships such as LC Lauren Conrad and Simply Vera Vera Wang. Gass said she's definitely interested in doing more designer hook-ups.

"We did designer collections, and we'll do collaborations every six months," Gass said. "That's an opportunity."

Kohl's core customer is between 35 and 54 years old. "We love this customer,"

Gass said. "Some would describe [Kohl's customer] as being in the middle — middle income, middle America. The way I think about it, we can be famous for the middle, by being more things middles want.

That includes being aspirational with accessible price points. We're looking for ways to bring that aspirational [product] to customers." An example is Simply Vera Vera Wang, Gass said.

"It's not enough to serve existing customers," Gass said. "We need to be relevant to Millennials." The retailer is leaning in on Millennials and overlooked consumer groups such as large sizes. PopSugar at Kohl's is an example of the former, and plus-size house brand EVRI, the latter. "We see an opportunity to address the $14 billion plus-size market," Gass said, adding that "67 percent of women are size 14 or larger."

Kohl's is staking a claim to activewear. So bullish is the retailer on the category, it's doubled in size over the last four to five years, Gass said.

The retailer in 2016 announced it would launch Under Armour to strengthen its athleticwear offering. Gass said at the time, “You'll see Under Armour across every part of the store, including apparel for men, women and kids, footwear, accessories and health devices.” Gass revealed that today Under Armour is Kohl's number-two brand behind Nike.

The retailer doesn't ask consumers to choose between national brands and private labels, and when it comes to store size, it's not one size fits all. In addition to the traditional 90,000-square-foot unit to smaller-format 65,000- and 35,000-squarefoot units have opened. No, the company is not schizophrenic, it's simply embracing the dualities that exist in its business.

"Great brands with huge reach is an opportunity," Gass said, noting that Kohl's is engaged in a pilot partnership with grocery store Aldi. In March, the retailer condensed inventory to clear out space in about 300 of its 1,000 stores. The company told analysts that “the size of the opportunity in our eyes is the 500 stores that — by the end of this year — we would have moved from a standard footprint to a small footprint.”

"We're right-sizing stores, from 90,000 square feet to 60,000 square feet," Gass said. "We want to bring in neighbors who can drive traffic." The smaller units offer an elevated experience, expanded assortments and are posting double-digit growth.

Kohl's has succeeded by being contrary. For example, Kohl's in the Sixties eschewed shopping centers in favor of off-the-mall locations. Gass believes the strategy was prescient considering that some department stores today are in the process of reinventing themselves or closing doors. "While everyone was moving into malls, we took the opposite path. About 95 percent of our stores are [freestanding].

“In the early years, Kohl's designed its stores differently. The moves we made then are helping us now. I landed here five years ago, and during that time, Kohl's has become a major player, with 1,150-plus stores and 140,000 employees. About 85 percent of the U.S. population is in close proximity to one of our stores.”

Gass, who in May, was elevated to ceo, joined Kohl's in 2013 as chief customer officer after spending almost 17 years at Starbucks. "When I arrived, it was a pretty pivotal time with lots of pressures. What do coffee and apparel retailers have in common?" Gass asked rhetorically. "Both organizations put their customers first and have a real appetite for innovation. Starbucks always keeps you guessing. Both companies have amazing cultures. If you first take care of your people, your people will take care of your customers."

“There were new competitive entrants nipping at our heels," Gass said about one of the challenges she faced when she moved into the c-suite. "The biggest disruptive force was the digital transformation that was occurring in the retail industry. In some ways, we were a little behind. The headwinds were pretty fierce. I knew it wasn't going to be an incremental [change] that would get us there. It had to be transformative.”

Gass said she set goals for Kohl's, including striving for operational excellence. "It's working," she said.

Identifying the online and digital revolution, Gass decided to have Kohl's redeploy $250 million to customer-facing initiatives and challenged the team to work differently. "We're surgically going in with a local strategy and plan and are managing inventory. Turns have improved at a very rapid rate and product is fresher, and that's a core capability," she said. New businesses include making a push in outerwear, and developing footwear with the upcoming launches of Sam Edelman and Steve Madden, along with the introduction next year of Nine West.

In addition, Drew and Jonathan Scott, whose popular home improvement show is "The Property Brothers" on HGTV, announced recently that they'll launch an exclusive home lifestyle collection at Kohl's in fall 2019, which will include indoor furniture, decor, textiles and bedding. "We're making a big commitment to product and merchandising and really serving her well," Gass said.

“We're beginning to put a massive focus on reaching younger customers,” Gass said. "We're also reinventing the experience in stores. We're experimenting with a new checkout process online and self-checkout in stores." About 40 percent of all digital orders are fulfilled by stores. During the holiday season, it's half of all orders.

"We do have momentum," Gass added. "Our sales and earnings are growing and we have a strong balance sheet. That's always been a hallmark of Kohl's. The balance sheet allows us to invest in the future. Based on the additional cash we've been able to buy down some of our debt."

"From Seattle to London to Wisconsin, I'm really glad I made the move to Kohl's," Gass said. "I see even a bolder and brighter future for the company. We can accelerate leveraging our strengths to identify new opportunities.

"We'll continue to invest," Gass said. "We have to outpace [competitors] and for the modernization of the brand. We're very results oriented. We're a caring culture. I'm committed to our stores, and also committed to digital. I take a long-term view."