Potential multiple takeover bids for Kohl's

[luckysaver]

Kohl's stores in La Verne CA and La Habra CA actually downsized - they decided to shrink the store and Amazon Fresh took over half the building. I assume other large Kohls buildings might do the same within the next few years. One of the smallest Kohl's stores I've seen is in Montebello CA adjacent to Albertsons. I recall reading some articles saying citing that Amazon Fresh and Kohls formed a partnership to open grocery stores inside select Kohl's buildings (not just locally in SoCal but across the nation) and this is an extension of Kohl's original partnership with Amazon (accepting package returns/selling Amazon-branded gift cards/Amazon Locker on site). My neighborhood Kohl's store (City of Industry CA) has not been so busy in recent years and if they do decide to downsize, I expect half the building to become an Amazon Fresh. If this trend of downsizing store sizes (and offering the surplus space to Amazon), its a possible sign they are going under and could be bought out very soon. If they maintain a strong partnership with Amazon, it might possibly be that Amazon could buy out Kohls and become a chain of fashion stores (Amazon Style, the new demo store opening soon at Glendale Galleria).

luckysaver

[ClownLoach]

Kohl's stores in La Verne CA and La Habra CA actually downsized - they decided to shrink the store and Amazon Fresh took over half the building. I assume other large Kohls buildings might do the same within the next few years. One of the smallest Kohl's stores I've seen is in Montebello CA adjacent to Albertsons. I recall reading some articles saying citing that Amazon Fresh and Kohls formed a partnership to open grocery stores inside select Kohl's buildings (not just locally in SoCal but across the nation) and this is an extension of Kohl's original partnership with Amazon (accepting package returns/selling Amazon-branded gift cards/Amazon Locker on site). My neighborhood Kohl's store (City of Industry CA) has not been so busy in recent years and if they do decide to downsize, I expect half the building to become an Amazon Fresh. If this trend of downsizing store sizes (and offering the surplus space to Amazon), its a possible sign they are going under and could be bought out very soon. If they maintain a strong partnership with Amazon, it might possibly be that Amazon could buy out Kohls and become a chain of fashion stores (Amazon Style, the new demo store opening soon at Glendale Galleria).

luckysaver

The difference is that Amazon has very deep pockets to contribute construction dollars but right now Fresh is just small enough to be a money losing distraction. If it gets much larger Amazon will have to break out specific financial results which right now are undoubtedly horrible. Amazon investors will not tolerate the company running a line of money hemorrhaging grocery stores for fun. It is also clear no value engineering has come up yet for construction costs to bring them in line but obviously no expense has been spared. It is already clearly costing too much to build these (and in splitting Kohl's case add construction costs which would be substantially higher, maybe even double that of a dead box or new build).

I have no idea how anyone could justify the price of properly subdividing an occupied Kohl's store when there is so much dead whitespace in the market. So far Kohl's has signed deals to split half the chain with Aldi which didn't make it past one store, fitness chains which I don't believe have happened, and now an experiment with a couple of Amazon Fresh stores which again won't go much further than this. The surplus space sale idea is something that they're just doing to appease the circling sharks and make it appear like they're trying creative ways to become profitable again but make no mistake it is not viable due to wild construction costs and lease restrictions therefore it will never make it past a few hand selected pilot stores. No Wall Street analyst is smart enough to ask how many of their stores have other co-tenant restrictions but because no chain develops without them I can assure you that every single Kohl's that isn't in its own freestanding building without any co-tenant is affected by such requirements. No national chain of any kind of stores today leases without these covenants (which usually are to keep out low class or problematic operations, such as adult bookstores or other seedy stuff but can include high intensity parking use as well - my last company restricted opening of fitness centers and sports bars in our shopping centers due to the parking impact on our business).

Please don't forget that most grocery store and pharmacy chains sign "non compete agreements" in their leases which apply to the entire shopping center. Target had several stores developed in centers with Albertsons in the late 80's and they have exclusive right to grocery on the property which is why the Target next door never even got P-fresh and is limited to no more than 300 feet of refrigerated door food or beverages total and cannot sell fresh meat or produce in any amount. (Aliso Viejo, CA where the agreement transferred when the store was sold to Stater Bros and West Murrieta, CA). Kohl's focused on grocery anchored strip malls and I am very sure such lease agreements are in place. Both of the locations you mentioned are in centers either condominiumized (meaning each building has a separate owner now) and/or the Kohl's part lacks a grocer. La Habra is at a busy intersection but the area is dominated by Walmart, Sam's Club, Target, Trader Joe's and Costco all within a block or two so traditional grocers haven't fared well. Vons closed down in an old Smith's box and once it was vacant the property was gutted and subdivided properly into the Trader Joe's, Burlington and CVS. It is easy to split a closed store but a open one is wildly costly and can't even be done in an area that does not allow for 24 hour construction as much of the separation of equipment needed can't be done with public or employees present due to fire codes, for example when the sprinkler systems begin to be cut off and separated into different zones for the separate suites.

Ironically there is a loophole that can be exploited but it requires the liquidation of Kohl's. If the bankruptcy court assigns the lease of the Kohl's building to a tenant that can and does override the lease restrictions of other tenants. This is famously how Hobby Lobby entered California through bankruptcy lease auctions of Mervyns stores in the same center as Michaels who always requires a exclusive right to craft business in their leases. The courts allowed them to open anyway because it was a federal sale and lease law was a state matter. If Kohl's liquidated then in theory Amazon could bid for stores in restricted centers, win the auctions, and then place grocery stores there. But how effective would it be for let's say a random Kohl's in Colorado to become a small Amazon Fresh when there is a busy King Soopers next door? Adding a second grocer to a center just skims dollars and Amazon won't win on selection, price, service, or shopping environment. Only leg they have to stand on is delivery and that could be done from a warehouse in a cheap industrial area for pennies on the dollar.

Kohl's is rapidly becoming a worthless operation, one that has leased real estate for far more than it is worth today, and only balanced that with purchased real estate that is worth more if Kohl's closed and sold to someone else. Let's make it very clear: the reason sharks are circling right now and hostile takeover bids are coming in is that Kohl's is worth more dead and liquidated than alive. I did not realize how severe the deterioration of their operations was until very recently.

Amazon isn't going to buy them. They'll wait until the bankruptcy liquidation and pick off the leases they like one building at a time. You are very correct that the Amazon Style test may be for what to do with entire single level Kohl's buildings that they may pick up and need a co-tenant for. But they have no need for the entire company which is a worthless enterprise. They may be rich but they're not stupid. They will not pay tens of billions for the whole package when they can buy the parts they want later for a few million. Plus they will face negative PR and other pushback just because they are Amazon. If they wanted to go spend tens of billions of dollars and fight through bad PR, leap through government hurdles, etc. then they would be better off attempting an acquisition of Target where there would be tremendous synergies and little overlap.

Kohl's is actually the next Sears. The only difference is they don't have enough real estate to be worth it for another "fast Eddie Lampert" to come around and take it over in a gradual asset theft/prolonged liquidation manner selling the best and most profitable stores to developers (including himself) and then letting the rest die on the vine one at a time. They don't have enough mall presence for a takeover like JCP got from their landlords who recognized that it was cheaper to buy them out versus accept the required rent reductions to co-tenants that anchor agreements give in leases (basically mall leases say if an anchor closes then you are entitled to years of substantial rent reductions). They're just in the wrong place at the wrong time.

[storewanderer]

Ironically there is a loophole that can be exploited but it requires the liquidation of Kohl's. If the bankruptcy court assigns the lease of the Kohl's building to a tenant that can and does override the lease restrictions of other tenants. This is famously how Hobby Lobby entered California through bankruptcy lease auctions of Mervyns stores in the same center as Michaels who always requires a exclusive right to craft business in their leases. The courts allowed them to open anyway because it was a federal sale and lease law was a state matter. If Kohl's liquidated then in theory Amazon could bid for stores in restricted centers, win the auctions, and then place grocery stores there. But how effective would it be for let's say a random Kohl's in Colorado to become a small Amazon Fresh when there is a busy King Soopers next door? Adding a second grocer to a center just skims dollars and Amazon won't win on selection, price, service, or shopping environment. Only leg they have to stand on is delivery and that could be done from a warehouse in a cheap industrial area for pennies on the dollar.

Kohl's is rapidly becoming a worthless operation, one that has leased real estate for far more than it is worth today, and only balanced that with purchased real estate that is worth more if Kohl's closed and sold to someone else. Let's make it very clear: the reason sharks are circling right now and hostile takeover bids are coming in is that Kohl's is worth more dead and liquidated than alive. I did not realize how severe the deterioration of their operations was until very recently.

I see 1 of the 3 Kohls in my area is owned by Kohls. I thought 2 of them were; I was wrong. The one that is owned by Kohls is freestanding and sits next to a Wal Mart (small parking lot and garden area between the two).

As you point out there are a lot of reasons why converting to grocery is not really going to be a great idea. Beyond the various issues you have noted, lease covenants, etc., there are also access issues where some of these stores flat out wouldn't make good grocery locations.

I don't really understand how Kohl's operations deteriorated so significantly. It really reminds me of the final blow to Sears/Kmart. Kohls always had some categories in the store that felt weak- mostly home decor and other odd categories stuck on the back wall in a low traffic area. Seemed like their bed/bath/kitchen category was never great but got progressively weaker in recent years. Also felt the quality of their private label clothing became worse over the years; it wasn't great to begin with but became worse. But more recently, specifically after the COVID reopening, that deterioration in terms of merchandising and categories that feel weak has spread into core clothing categories. To make up for the lack of merchandise Kohl's has removed numerous fixtures from the floor and does not merchandise space it used to merchandise, like walls. They will say this was to de-clutter the store and make the store easier to shop. It is easy to shop yes, when there is nothing you want, and you figure that out fast, easy to make that determination and walk out to Macy's or Dillard's who actually stock their stores.

Just like Sears/Kmart where they shut down the last bit of the buying operation during the COVID closures and basically quit merchandising the stores with any standard product sets/plan o grams and started to remove fixtures and block off areas of the store.

[buckguy]

Kohl's main advantage over their competition is that they are not in dead/dying malls. In many respects, they are the "power center" counterpart to JCPenney. Subleasing space only makes sense if the tenants will drive customers into their store and I doubt Amazon Fresh will accomplish that, esp. if the stores are as poorly patronized as they seem right now.

They basically have 2 problems which they do share with most of their competition---they are stuck in a cycle of discounting. The last time I went to Kohl's, I wanted just thing, but you needed to buy 2, have their card etc. to get the promotional price. Some people like that because they feel like they're getting a bargain, and they would lose those people (and possibly not gain others) if they got off this treadmill. The other thing is that they are a mature business with limited ways to grow. The leased cosmetic space might help them but they would need to think of other extensions that could generate new customers or greater spending by existing ones. That is very difficult to do. Looking at their locations, they seem rather well saturated in metro areas, although they are one of the few chains not to build in well-functioning urban areas or inner ring suburbs. Some of those places might be more upscale than their usual target and those locations are expensive to develop, but that's the only place they really can go. OTOH, they are in a surprising number of small markets and these generally are places that have lost Macy or JCP stores and may have had a Stage store vanish after that chain's bankruptcy. Being the last store standing in those places may help Kohl's in the short-run, but losing major chains and, in some cases, entire malls makes those places less viable as retail destinations, esp. for softlines. They really need to focus on merchandising and that is something that takes a long time show results. They need ownership that can tolerate progress that might not come easily.

[Super S]

Kohl's main advantage over their competition is that they are not in dead/dying malls. In many respects, they are the "power center" counterpart to JCPenney. Subleasing space only makes sense if the tenants will drive customers into their store and I doubt Amazon Fresh will accomplish that, esp. if the stores are as poorly patronized as they seem right now.

They basically have 2 problems which they do share with most of their competition---they are stuck in a cycle of discounting. The last time I went to Kohl's, I wanted just thing, but you needed to buy 2, have their card etc. to get the promotional price. Some people like that because they feel like they're getting a bargain, and they would lose those people (and possibly not gain others) if they got off this treadmill. The other things is that they are a mature business with limited ways to grow. The leased cosmetic space might help them but they would need to think of other extensions that could generate new customers or greater spending by existing ones. That is very difficult to do. Looking at their locations, they seem rather well saturated in metro areas, although they are one of the few chains not to build in well-functioning urban areas or inner ring suburbs. Some of those places might be more upscale than their usual target and those locations are expensive to develop, but that's the only place they really can go. OTOH, they are in a surprising number of small markets and these generally are places that have lost Macy or JCP stores and may have had a Stage store vanish after that chain's bankruptcy. Bring the last store standing in those places may help Kohl's in the short-run, but losing major chains and, in some cases, entire malls makes those places less viable as retail destinations, esp. for softlines. They really need to focus on merchandising and that is something that takes a long time show results. They need ownership that can tolerate progress that might not come easily.

The events at JCPenney have proven that people actually would rather deal with cards and gimmicky promotions to get sale prices. Kohl's requirement to have a card and multiple items almost seems Safeway-like. But people are conditioned to think they get better deals with the gimmicks and don't actually compare prices.

I think Kohl's can still be viable if they paid more attention to pricing, which is not really all that great. I also think they could still be viable if they carried a broader size range. Kohl's (like many department store chains) does not seem too interested in carrying much in a men's department above a size 2XL, and I often have a hard time finding shirts among other things. In some cases these are online only, the problem is that you can't try things on when buying online and returns can sometimes be a hassle. (I have experienced this particularly when trying to find suitable work shirts I need) A store that is 100K square feet or more needs to have the choices one expects in a store of that size, and this is one way these empty spaces could be filled. This is a problem that also is present at JCPenney, Macy's, and others with large older stores.

I honestly think that JCPenney had a good idea when they were simplifying their pricing. I think that it's going to take a NEW retailer of some sort that operates with that type of pricing to arrive before the public accepts that format though.

I will say this again...the most successful retailers didn't get where they are with price gimmicks.

[storewanderer]

I honestly think that JCPenney had a good idea when they were simplifying their pricing. I think that it's going to take a NEW retailer of some sort that operates with that type of pricing to arrive before the public accepts that format though.

I will say this again...the most successful retailers didn't get where they are with price gimmicks.

I agree the simplified pricing at JCP was a very logical idea but it was just poorly executed/implemented. They tried to change too much too quickly. They also cut the quality of various of their house brand goods in conjunction with the price decreases they made. That may have been what really did them in that nobody will ever admit.

Back to Kohls, I have not noticed many quantity required sales there. I can think of some in basics type categories such as men's socks. Those items already cost too much at Kohls compared to Wal Mart, so I have not purchased such items at Kohls in many years. However, if you do get stuck in one of those situations with the buy one get one half off, what you can do is buy 2 units then return 1 unit. They will have a "return value" at 25% off each. Some may call it return fraud to buy 2 knowing you do it solely to get the discount then turn around and go return one unit. I say fine- change your system then so it refunds back the first one at 50% off and the second one at full retail then.

I have seen coupons for instance 20% off $50 or more purchase or 15% off under $50 purchase.

[BillyGr]

I think Kohl's can still be viable if they paid more attention to pricing, which is not really all that great. I also think they could still be viable if they carried a broader size range. Kohl's (like many department store chains) does not seem too interested in carrying much in a men's department above a size 2XL, and I often have a hard time finding shirts among other things. In some cases these are online only, the problem is that you can't try things on when buying online and returns can sometimes be a hassle. (I have experienced this particularly when trying to find suitable work shirts I need) A store that is 100K square feet or more needs to have the choices one expects in a store of that size, and this is one way these empty spaces could be filled. This is a problem that also is present at JCPenney, Macy's, and others with large older stores.

If they don't expect that much in the way of sales of the larger sizes, another option could be to have a small section that worked like a "trial" area - have one of each item in each larger size that is available online that customers could try on, then order what they wanted.

That way, it limits how much stuff is in each store possibly sitting unsold, while still allowing those who need those sizes to order them knowing that what they get will be useful, having tried on the one in store first. And, if they tracked who was ordering the items in any given area, they could contact those people with offers when items were discontinued to get the "sample" ones at a minimal cost, to help clear them out of the stores.

[storewanderer]

If they don't expect that much in the way of sales of the larger sizes, another option could be to have a small section that worked like a "trial" area - have one of each item in each larger size that is available online that customers could try on, then order what they wanted.

That way, it limits how much stuff is in each store possibly sitting unsold, while still allowing those who need those sizes to order them knowing that what they get will be useful, having tried on the one in store first. And, if they tracked who was ordering the items in any given area, they could contact those people with offers when items were discontinued to get the "sample" ones at a minimal cost, to help clear them out of the stores.

Wal Mart and also Sears/Kmart have had an extensive assortment of large sized clothing available at the present time. I think in the case of Wal Mart the price bumps up a little after perhaps 2XL.

I think some of these chains are not interested in large size clothing because it, literally, costs more to produce it. A great way to increase margin is to cut out high cost products. Large size clothing uses more fabric, so these chains like Kohl's that are more interested in pleasing Wall Street than pleasing their customers cut the stuff out to get some metric up and Wall Street cheers and then the customers go find other places to shop and it isn't just the 2XL size stuff they are buying elsewhere but it is also the socks for their kid or the gift they are giving to a relative for an upcoming birthday.

[mbz321]

I agree the simplified pricing at JCP was a very logical idea but it was just poorly executed/implemented. They tried to change too much too quickly. They also cut the quality of various of their house brand goods in conjunction with the price decreases they made. That may have been what really did them in that nobody will ever admit.

Exactly this. Penney basically changed their entire product line around during that time. They dumped pretty much all their well-known and liked house brands like St. John's Bay and replaced it with 'jcp' branded skinny jeans in hopes of attracting a younger demographic (failing to capture them and chasing away the loyal shoppers they did have). The pricing strategy might have worked if they didn't make all the other changes. This whole situation amazes me that given how badly Kohl's seems to have become (its been at least a few years since I've been in one) that JCPenney might come out to be the stronger one.

[storewanderer]

Exactly this. Penney basically changed their entire product line around during that time. They dumped pretty much all their well-known and liked house brands like St. John's Bay and replaced it with 'jcp' branded skinny jeans in hopes of attracting a younger demographic (failing to capture them and chasing away the loyal shoppers they did have). The pricing strategy might have worked if they didn't make all the other changes. This whole situation amazes me that given how badly Kohl's seems to have become (its been at least a few years since I've been in one) that JCPenney might come out to be the stronger one.

That junk was part of the plan. The old lines like St. John's Bay were known for durable, thick, higher quality fabrics. That JCP brand junk used lousy cheap fabric and was cut very tightly (to conserve fabric and expand the profit margin).

Tough to imagine JCP coming out stronger than Kohl's... but Simon's group has a very vested interest in making JCP work. I am really surprised how many leased medium market JCP Stores have remained open too (Simon has no vested interest in keeping those open given they don't own the property). Kohl's - I am not sure what exactly the desired end game there is. Is it to enrich Wall Street or satisfy the customers? JCP is probably lucky they are privately held.