Kohl’s has committed to shrinking its inventory after the amount of excess goods “got out of control” in 2022, according to CEO Tom Kingsbury on a call with investors. An emphasis on “inventory discipline” could help the retailer reverse its fortunes after net sales fell 7% and operating profit dropped more than 85% year-over-year in in Q4 2022, which ended Jan. 28, 2023.
“We did a good job in 2021,” said Kingsbury. “But [in] 2022, obviously, we had a big spike in the inventory. So we need to improve those disciplines and need to be more agile in terms of having open to buy, to spend every single quarter so that we can chase the business. It’s better to understand what the customer wants and go after it than to buy it all upfront and hope it sells.”
The retailer will shrink its inventory levels in the future, as well as rethink how it gets rid of excess products. The retailer is aiming to eliminate slow-selling items evenly throughout the year rather than making a large push at the end of each season.
The change to discounting strategies could be particularly impactful: Kohl’s gross margin was 23% in Q4 2022, down from 33.2% in Q4 2022. The decline was primarily driven by clearance markdowns of approximately 750 basis points, according to CFO Jill Timm. In comparison, product cost inflation contributed approximately 200 basis points to the decline.
Kingsbury noted that he and Timm already took “significant actions” in Q4 2022 to help Kohl’s start on this new path. One strategy will be putting more gifting items up front in stores, which the retailer did for Valentine’s Day and plans to continue doing for Mother’s Day and “all true gift-giving periods.”
The company also will work to create a “more modern feel” for its stores through strategies such as reducing the level of graphics and signage in stores, according to Kingsbury. He noted that initiatives such as the Sephora partnership have helped attract younger, more diverse customers, and a new approach to store design could help it drive further interest from these demographics.
“I think there [are] a lot of opportunities,” said Kingsbury. “The reason why I came back to Kohl’s is because I see those opportunities, and I see that we can take advantage of those opportunities in the future.”