No, I’m not very happy that Kohl’s CEO Michelle Gass ended up taking more home in total compensation for 2020 than she did for 2019, for a year in which the company furloughed about 85,000 employees and closed its more than 1,100 stores nationwide for several weeks.
And neither do I like the fact that leaders of this retail chain – which has been the face of mid-American retailing for decades – canceled the Pillow Guy’s products after the Minnesota-based manufacturer became a political lightning rod.
But I’m still very glad that Kohl's seems to have beaten back the forces of coast-based activist investors who tried to overturn the board of the retailer based in Menomonee Falls, Wisconsin. Just on Wednesday, the company announced that it agreed with the investor group to place two directors nominated by the owners of 9.5 percent of Kohl's stock, and to settle their dispute.
Kohl’s represents the best of corporate innovation in Flyover Country, including great employment and advancement opportunities for our people, and qualifies as one of the truly phenomenal business success stories of the region during the last quarter century.
This assertion is absolutely true to me because I’ve experienced it on two significant levels. First, as a journalist based in Wisconsin for a while -- and for all of my career in the heartland -- I helped chronicle Kohl’s rise from a handful of stores in the Milwaukee area, after the chain’s founding by the same family that established Kohl’s supermarkets and that yielded Herbert Kohl, a former U.S. senator from Wisconsin and former owner of the Milwaukee Bucks.
The company started out with its headquarters in the back of a Kohl’s store in suburban Milwaukee, where then-CEO Bill Kellogg plotted the steady expansion of the chain based on a unique and clever approach to Kohl’s target customer: the middle-class mother.
At the very same time Walmart was building its impressive coast-to-coast empire that revolutionized mass-market retailing, Kohl’s was accomplishing something nearly as impressive in spreading and establishing its own retailing philosophy in new big-box stores nationwide.
The genius of Kellogg and of Kohl’s other leaders was to recognize that the chain’s formula wasn’t just popular with Wisconsin shoppers but also could transfer easily to value-oriented consumers across the country.
It featured a “racetrack” design in Kohl’s stores that gave shoppers an understandable merchandise map and quick and easy access to every part of the store; the use of shopping carts, initially, as a convenience that a traditional department store would never adopt; appealing relationships with mainstream apparel and soft-goods brands; strong private-label apparel lines; and not just value for the money but also a highly promotional pricing strategy that relied on a fast-changing mélange of weekly sales and kept store traffic hopping all the time.
Other innovations came along in spades, including a company-brand credit card that was early for the industry. Also, Kohl’s developed a loyalty program called Kohl’s Cash that – while confusing to non-committed shoppers like me – serves as cat nip to the chain’s typical customers and enables them, with some mental alacrity and organizational ability, to get even more bang for their bucks.
Kohl’s approach worked in spades. It had opened about 100 stores by the early 1990s around the Great Lakes, then went public in 1992. Building from there, Kohl’s steadily expanded across the entire country, eventually opening stores in 49 states.
Gratifyingly for someone who chafes at the American coasts’ ability to impose their business dominance on the heartland, Kohl’s – like Walmart – was able to flip the usual map inside out. Instead of seeing a company or a retailing type or a business trend launch on the East Coast or West Coast and then steadily invade Flyover Country, Kohl’s was able to take its strong, Midwest-born retailing concept and inexorably expand it out to the very edges of the continent, with no competitor ever able to match what it had accomplished.
By 2012, Kohl’s had become the largest department-store chain in the United States.
On a second level, I also understood why Kohl’s succeeded. Our own family have been regular Kohl’s customers for decades, watching and enjoying the chain’s success in meeting our own needs and becoming a household name across mid-America.
(I still chafe at the fact that Kohl’s, like many retail chains, gives parking deference to “online customers” who come to the stores merely for pickups. Why reward people for just clicking on an e-commerce order and physically disincentivize loyal customers who actually come to the stores? But that’s another story.)
Yes, Kohl’s success began fraying at the edges several years ago as the chain no longer could rely on new stores to add revenues, and as e-commerce began taking a toll on a sales strategy that very much relied on bricks and mortar. And last spring, the pandemic felled nearly every retailer.
But under Gass, Kohl’s responded after initial coronavirus shutdowns with a determination to reopen quickly, yet safely. At their stores, only one main entrance was left open, where a designated greeter enforced mask wearing.
Gass intensified Kohl’s traffic-building strategy of serving as a convenient outpost for Amazon returns and launched new forays such as partnerships with Sephora and Eddie Bauer.
And yet, inevitably, Kohl’s sales were down by about 20 percent in its last fiscal year as retailers across America struggled from floor-traffic stats that were savaged by the pandemic. Its stock plunged from a recent peak of about $82 a share in November, 2018, to under $12 a share last spring amid the immediate shock of the pandemic.
Kohl’s share price recovered steadily, to around $40 last fall. Then, not surprisingly -- foreseeing a general U.S. economic recovery ahead -- opportunistic activist investors from New York and California surfaced to intensify their efforts to boost Kohl’s share price. Now it’s up to around $60 a share.
At first, the group was trying to boot Kohl’s current board in its entirety and also presumably clear out Gass, a veteran of Procter & Gamble and Starbucks who joined Kohl’s as chief customer officer in 2013 and rose to CEO in 2018. The activists (who also include a group from Chicago) wanted to make a quick buck as well as perhaps perform a long-term play in a brand and retailing institution that they knew remained formidable despite its Covid-related stumbles.
But Gass fought them back with a full-throated defense of the company’s current strategy for growth, which also includes a partnership with the FLX private brand, as well as a focus on activewear, and casual and outdoor apparel for women shoppers.
She unapologetically asserted that she and current Kohl’s management and board were well equipped to exercise the company’s strategic pivot out of the pandemic, emphasizing the fact that all current directors have extensive retail or consumer-facing industry experience – including four board members who are former retail CEOs. Gass noted that the board has changed half its members over the last five years, refuting the notion that members were serving too long. And she highlighted the leadership experience of board members in technology, e-commerce and digital in general.
An initial victory for Gass in this struggle was that the activist group backed down from their earliest demands and then nominated just five replacement candidates for the board. Their agreement to settle for an added contingent of two of their directors, expanding the Kohl's board, has to be considered a further victory for Gass -- and, as I see it, long-term shareholders and the company itself.
Not so great is the recent report that Gass took home more in total compensation for last year than the pre-Covid year. While easily explicable because stock awards made up most of Gass's compensation last year, and in the context of Kohl's need to retain top talent in a highly competitive industry, the optics aren't great.
Yet while I clearly understand that a shareholder base as massive as Kohl’s represents holdings across the country and around the world, and at nearly every socioeconomic level, I can’t help but regard Kohl’s and its current management as the home team. Glad they won.
Σχόλια