Kohls Corporation by Bryan Heimberg ICS 395 Final Strategic Analysis Essay 5/6/2012

Part 1.0 Current Situation

What business is Kohls in and why? Kohls is in the business of competitively priced retail products consisting of apparel, footwear, accessories, and home products. Services provided by Kohls include a commitment to providing excellent customer service, gift registry, and credit services. Kohls primary customers are middle-class families seeking a great balance of name-brand high-quality products and affordable prices. Having a strong presence in the communities that Kohls operates in as well as practicing earth friendly business practices are two qualities that Kohls continuously strives to strengthen and maintain. Mission, Values, and Strategy Kohls Mission Statement: To be the leading family-focused, value-oriented, specialty department store offering quality exclusive and national brand merchandise to the customer in an environment that is convenient, friendly and exciting.(1) Kohls essential strategy is to enable their customers to view and purchase products online as well as instore. However, some products can only be purchased in store. This draws customers into the store and leads to impulse purchases. Another part of Kohls strategy is to spend heavily in marketing and influence customers to purchase products by using the word sale very frequently on almost all of their products. Kohls values include a strong commitment to providing excellent customer service, operating with a strong sense of corporate social responsibility, and establishing trusting relationships with the customers that they serve. Additional information pertaining to Kohls strategies, missions, and values can be found on the About Us section under the Press Room tab on Kohls website. Kohls target customers & locations While Kohls is very appealing to both men and women of all ages and demographics, its primary target market is married women between the ages of 25-50. (2) As a result, 32% of Kohls sales were generated from the Womens department of its stores. (3) As of February 3, 2012 there were 1, 136 Kohls locations. (4) There are Kohls locations in 49 states (every state besides Hawaii). Some Kohls stores are stand-alone stores, while others are located in a strip mall, and some locations are even located within a large-scale shopping mall. Meanwhile, almost all Kohls locations are designed in the same fashion and have the same layout. Kohls corporate headquarters is located in the Milwaukee suburb of Menomonee Falls, Wisconsin. Company Performance Kohls is currently achieving great success which in turn is very beneficial to the companys shareholders. In fact, the 2011 fiscal year was so successful for Kohls, the company issued its first ever dividend (current dividend of $0.32) and also repurchased shares for the first time in company history. Kohls net sales increased 2.2% to $18.8 billion. Meanwhile comparable stores such as J.C. Penney and Sears achieved a 0.5% sales increase. (5) Kohls is also above their competition in many other key ways such as having a higher return on investment (9.89 compared to a industry average of 7.74) and a higher return on equity as well (16.24 compared to an industry average of 11.22). (6) With a current stock price (as of 5/9/2012) of $50.86, this is a very attractive price both for investors and for the company. Overall, Kohls

should feel very positive about their current performance. Kohls is an attractive option for low-risk investors looking to invest in a steady corporation. Strategy Effectiveness Kohls strategy of competitive prices on good to great quality products paired with a strong importance of developing and maintaining relationships with their customers is working very well. Additionally, Kohls earth-friendly business practices add a social benefit and a great sense of well-being for both employees of Kohls and Kohls customers. In 2009, Newsweek ranked Kohls 18th out of 500 companies in their Green Rankings overall and first in their industry. (7) The Kohls Cares program, which promotes education and health care, is a distinguishable program that sets the company apart from its competitors in terms of building healthy relationships with its customers.

Part 2.0 External Environment

Physical Environment Due to heightened pollution levels, many city governments either have already established or are currently establishing ordinances and regulations relating to the amount of pollution a business emits into the atmosphere (also known as carbon footprint). This actually benefits Kohls because they are one of the most highly rated businesses in relation to acting in accordance to environmental friendly business operations. Some of Kohls competitors can be hurt by these events while Kohls benefits from them. A potential threat for Kohls in relation to the physical environment is the spring storm season. Tornados are very common across the Midwestern United States in the spring time. These tornados can potentially destroy Kohls business locations that are impacted by tornados. This will cost the company money to build a new store but it will give the company a chance to act as with philanthropy if Kohls helps to rebuild communities that are destroyed by a tornado. PESTEL Forces Political: Political forces should not affect Kohls business operations. Since Kohls is differentiated from large scale retail stores such as Wal-Mart Kohls should not expect to face any complaints. Kohls is a competitor in the retail landscape but Kohls is never viewed as a company that is trying to monopolize the retail market such as a company like Wal-Mart. Economic: Although the American economy has gotten better within the last twelve months, most people are always looking for good products at a price that they feel comfortable paying. Kohls is a middle-class oriented business and the majority of people are middle-class in America today (although seems to be changing slowly with time). Just like all businesses, Kohls will obtain sales on par with the American economy. Social: People of all demographics favor companies that place such an emphasis on treating their customers with a great level of customer service. Additionally, people of all demographics appreciate when corporations are active in their communities. The Kohls Cares program is an example of Kohls acting favorable towards its customers. If Kohls decides to become a multi-national company then the company will have to adapt to social customs of the countries that they decide to set up shop in. Technological: Kohls is not involved in the creation or distribution of technological products or equipment but the company does utilize technology by having a website that increases customer awareness as well as the capability for customers to purchase their products. Kohls could also invest money into technological equipment to enhance its supply chain processes to be at or near the top of the retail industry. Kohls investment in digital marketing should be maintained and even improved if their budget allows for this expenditure. Environmental: Kohls sustainability practices are very favorable to most people. Since Kohls is known for being such an Earth-friendly corporation, this will greatly benefit Kohls in relation to

Legal:

some of its competitors, particularly those competitors that do not put such an emphasis on being green and do not act with corporate social responsibility values as heavily as Kohls does. No recent news events or revised legal regulations should impact Kohls either positively or negatively. Laws and regulations change pretty frequently so it will be important to stay up-to-date with newly designed and newly implemented laws and regulations as they are developed.

Porters Five Forces Model Power of Cust: Since Kohls is in the retail industry, the elasticity of demand is always high and price is always important in order to retain and attract customers. Power of Suppliers: Due to the fact they Kohls has strong relationships with its suppliers paired with the fact that they have many of their own brands, Kohls does a significant sense of authority in power over its suppliers. Kohls relationship with their suppliers is looked at as friendly and fair rather than monopolistic such as Wal-Marts power over its suppliers. Threat of Entrants: Creating a new national retail chain takes a significant amount of resources. Additionally, it takes a long time to establish a new retail business at the national level. Therefore, Kohls should not be worried about new entrants into the market in which it serves at this time. Threat of Substitute: Kohls does have a large number of competitors such as J.C. Penney, Sears, Marshalls, Carson Pirie Scott, and American Eagle Outfitters whose target market is middle-income consumers and who carry only clothing garments. Rivalry: Rivalry is fierce and intense in the retail industry. Due to this, Kohls has a large number of rivals who are always looking to capitalize on any mistakes that Kohls might make while conducting business operations. Current Issues: During an election year, Presidential candidates are always looking for ways to connect with their constituents. As a way of connecting with middle-class America, both President Barack Obama as well as GOP candidate Mitt Romney might propose retail friendly legislation such as cheaper sales taxes and cheaper property taxes for retail establishments. Due to high gas prices as well as increasing costs throughout the entire economy, consumers might decide to scale-back spending at retail establishments. This can cut into the sales and profits of Kohls at any time. Summary: Due to the large number of competitors in the retail market that sell only clothing and target the middle-class, Kohls needs to make sure to stay on top of and ahead of its competition through kaizen principles (or continuous improvement). Although the economy seems to be getting better in recent times than it was only a couple of years ago, many people are still struggling in todays economy. This makes it even more important for Kohls to retain its current customers and attract new customers away from its competition.

Part 3.0 Internal Environment

The Kohls corporation is not only focused on selling great products for great profits. Instead, Kohls is very focused and interested in protecting the Earth as well as enhancing the people of America. The United States Environmental Protection Agency (EPA) awarded Kohls first place in its annual Green Power Partnership awards in 2012. The company also placed second overall (only behind Intel) in the National Top 50 section for the same award. We live in a country that is very green friendly. Because of this, Kohls should not only feel proud of its positive actions towards the environment, but they should also expect to connect with more customers due to their green business practices. This will result in a high rate of consumers shopping at Kohls and will give the company a great competitive advantage over its competitors. For more information regarding the EPA Green Power Partnership awards please refer to their website. (8)

Kohls is extremely interested in the well-being of its customers. By staying involved in the communities of people that it does business with, Kohls is able to act as a philanthropist while also increasing customer awareness of it brand. In order to show people that Kohls really does care about their customers, the company operates a diverse group of philanthropic organizations that all fit under the name Kohls Cares. Kohls Cares essentially has four different programs combined into one program. The four different sections that Kohls operates are called: 1) Committed to Kids Health and Education 2) Advancing Environmental Solutions 3) Supporting Womens Health and 4) Associates in Action. All four of these programs serve a certain purpose and all four programs are designed to help all people, but specifically people in need, to live happier, healthier, and more educated lives. For more information regarding the Kohls Care program, please refer to the company website. Marketing Kohls market position is very solid and stable. While Kohls is not currently involved in international business activities, the companys marketing position and marketing mix is doing exceedingly well. The companys exclusive brands are really defining success for Kohls due to the fact that its private and exclusive brands have accounted for 51% of sales the past few years. According to Fitch business ratings, private and exclusive brand sales grew over 8% to $9.6 billion in 2011, which is higher than both 2010 and 2009 (16% and 11% respectively). At the same time, Kohls competitors realized flat to single-digit decline over the same time period (9) Kohls targets price-conscious consumers looking for great value, but the corporation does not rely on a specific percentage or dollar amount from customers of any particular demographic. Due to a slumping economy, Kohls decided to invest an extra $30 million in the companys fourth quarter marketing budget in order to capitalize on Holiday 2011 sales. For more information regarding this story, please refer to a November 10, 2011 article written by Natalie Zmuda in The Advertising Age. (10) The fact that Kohls is realizing a solid growth in market share while its competitors are staying at the same level or are even losing market share spells success for Kohls in the short-term. As long as Kohls continues to place an emphasis on high-quality exclusive brands, Kohls should be able to thrive in the long-term as well. Finance Financially, Kohls is in a great position and is very balanced. Kohls gross profit margin is 36% over the past five years. The company also has a 6% EBIT as well as $1,205,000 net cash at the end of 2011. All of the companys product lines are doing favorably and all product lines that are currently operating right now should be continued into the future. The companys average stock price over the past 3 years is $51.50. Over the past three years the stock price has lowered a total of 5.4%, but this is due to a 49% increase at the end of 2009. So overall, the companys stock price is very appealing and is quite steady. The company investment in marketing as well as exclusive high-quality product lines has really put Kohl ahead of nearly everyone else. Kohls is at the top of its competition besides Wal-Mart. However, Wal-Mart is not one of Kohls direct competitors since Wal-Mart sells grocery products as well as clothing garments and house ware items. Research & Design Kohls does not place a large emphasis on R&D expenditures, as is the case for most companies in the retail industry. The majority of Kohls R&D related expenses come in the form of property and equipment investments which amount to $8.905B at the end of 2011. Kohls has an 11% Return on Invested Capital (ROIC). Kohls does not outsource R&D activities but most of the companys suppliers are located in foreign countries. While R&D is not one of Kohls core competencies, the corporation can consider investing more in supply chain management activities which implement R&D related equipment such as RFID tracking technology and advanced ordering capabilities on a per-store and as-needed basis. Operations

While Kohls is a retail company, the company places much more emphasis on the services that is provides to its customers, thus making it a service provider. Kohls operates with a strong sense of corporate social responsibility. As a result, the company is very sustainable and is very appreciative and responsible to its customers. The company is very current with technology, thus they have a very strong web presence which customers can utilize to do many things on, including order products, look up current sales promotions, and even research company performance. Like many of its competitors, Kohls does utilize RFID as well as barcode scanners, an efficient ordering system, and a company database which keeps track of all customer purchases and demographic information about the companys customers. Summary Of all of the stated competencies above, the largest and most important core competencies that distinguish them from their competition is their devotion to the well-being of their customers as well as the companys devotion to operating sustainably. By maintaining and even increasing their time, money, and effort into these two core competencies, Kohls has the potential to be the leading retailer in the price-conscious sector of the retail industry. Due to Kohls commitment to the well-being of the people of America that Kohls does business with, I would not outsource any activities to foreign countries. I would not outsource any activities due to the fact that American people are very upset with the rampant outsourcing decisions that most large corporations are making these days. As a result, many American citizens are out of work and are protesting all across America (such as Occupy Chicago for example). If Kohls decides to become invested in international business activities, then I would suggest considering outsourcing activities, but that would still be a very tough decision. Although short-term profits may be lowered, not outsourcing business activities and providing American people with jobs has the potential of developing into one of Kohls core competencies in itself. This core competency can certainly help Kohls achieve long-term success both in terms of profit as well as connecting with their customers.

Part 4.0 Major Findings from TOWS

After conducting a brief TOWS analysis it can be reasonably inferred that Kohls mission and strategy act in accordance to and generate positive results as a result of emphasizing their strengths. Kohls has far more strengths and opportunities than weaknesses and threats. As a result, this places Kohls in a very favorable position for both short-term and long-term success. For a more complete analysis at Kohls TOWS position please refer to (http://www.wikiswot.com/SWOT/4_/Kohls.html) as well as Kohls Annual Report.

Part 5.0 Strategic Alternatives

Business As Usual Although the business operations that Kohls is currently involved in, they have the potential to really become a dominant force in the retail industry with just a few adjustments. Kohls is currently viewed as a philanthropic leader among retail businesses. The company can enhance this even further by sponsoring more public events, giving more money to charitable foundations, and they can even decide to let customers win Kohls products off of their web site like some radio stations do. International expansion is a great investment strategy to ponder as well. International Expansion Many countries have a middle-class population that is rising faster than ever before due to business executives deciding to outsource business activities out of country. Two countries that have a rapidly increasing middle-class population are China and India. While these countries do offer an opportunity for growth, expanding into either of these countries would require extensive investment in learning acceptable business incomes as well as time learning about the county. China is a very difficult country to expand into due to the fact that China is a communist country which operates much more strictly than America and most other countries do. Although investing in other countries such as China and India would require

extensive investment, this move could put Kohls at the top (or at least tied at the top with Wal-Mart) of its competition. Attract More Customers to the Store in traditional and non-traditional ways While Kohls does attract a good amount of customers to its stores already, the company can potentially attract far more than it currently does. One way that Kohls can attract more customers to the store is by investing in a partnership with an earth-friendly fast food establishment or coffee business such as Caribou Coffee. By signing a partnership with Caribou Coffee, Caribou Coffee would be allowed to establish a branch location within a Kohls store. Kohls could invest capital for Caribou to start its business in the Kohls store which would entice Caribou to move into Kohls stores. Inside of Caribou would be a lounge with free internet access for customers as well as a large caf style seating arrangement with magazines to read and also purchase. This model is currently what Barnes and Noble bookstore incorporates into all branch locations of their store. Another way that Kohls can attract more customers into its stores is by having weekly or monthly events such as local radio stations broadcasting at the Kohls store and free fun events at Kohls retail stores such as a rock wall in each store, a money machine with Kohls cash vouchers, and celebrity appearances.

Part 6.0 Recommended Strategy

In order to maintain and improve upon both short-term and long-term success, I would recommend a combination of increased promotions, and attracting more customers to the store using traditional and nontraditional methods. By enhancing and investing in increased promotions, more customers will be eager to visit and purchase products from Kohls stores. An increased promotions budget will result in higher sales, higher revenue, and ultimately higher profits for the company. By having the most entertaining promotions in town, Kohls will attract more customers to their stores and will thus increase their market share in the retail market. An example of a promotional tactic that could be used to achieve this would be to have weekly or at least monthly visits to Kohls stores by current and former professional sports players as well as current and former actors and actresses. Having famous people attend promotional events at Kohls stores will increase employee productivity as well because Kohls employees will be excited to have these famous people at the store where they work. Allowing employees to meet and interact with the famous people that visit Kohls will add excitement and overall satisfactory to Kohls employees. As they say, a happy employee is a productive employee. Establishing and having a partnership with Caribou Coffee will increase customer awareness for both Kohls and Caribou Coffee because consumers will be able to shop for clothes as well as relax and drink coffee at the same establishment. This will connect with Kohls primary target market of middle-income women between the ages of 25-50. Having a coffee shop inside each Kohls store can work as a bait and switch tactic to draw customers into the store. These customers will then be enticed to purchase products that are on sale because Kohls holds many sales all throughout the year. Most women love to shop and the idea of shopping while also drinking coffee and possibly even eating tasty snacks at the same time is very appealing. The philanthropic acts that Kohls is currently involved in should continue. Customers are much more willing and eager to shop at a retail store that is involved in their community rather than a store that does nothing to help the people of the community that it sells its products in. This increases total sales and in turn raises the stock price for Kohls. Philanthropy in a business setting is really a two way street. Increased well-being and higher education leads to economic success. Economic success leads to consumer spending. Consumer spending leads to higher sales and profits for a business. Due to this cycle, Kohls is very smart to participate in many philanthropic acts. Its great to see such a large corporation helping ordinary American citizens, especially in time of need.

Bibliography 1) http://www.kohlscorporation.com/pressroom/PressRoom02A.htm

2)

http://www.bloggingstocks.com/2007/11/13/kohls-is-a-know-thy-customer-casestudy/

3)

http://www.wikinvest.com/stock/Kohl's_(KSS) http://www.aggdata.com/store_locations/kohls_department_store http://www.businesswire.com/news/home/20120223005256/en/Kohls-CorporationReports-Fourth-Quarter-Fiscal-2011

4) 5)

6) 7) 7) 8) 9)

http://www.reuters.com/finance/stocks/overview?symbol=KSS.N http://greenrankings2009.newsweek.com/companies/view/kohl-s http://en.wikipedia.org/wiki/Kohl's http://www.epa.gov/greenpower/toplists/top50.htm http://www.businesswire.com/news/home/20120214006030/en/Fitch-AffirmsKohls-Corps-IDR-BBB-Outlook

10)

http://adage.com/article/news/kohl-s-adds-30-million-holiday-budget/230938/

Appendix
Altman Z-Score ($ values in millions) Total Assets: Total Liabilities: Current Assets: Current Liabilities: EBIT: Retained Earnings: Net Sales: Market Value of Equity: Altman Bankruptcy Z-Score: 5.17 RISK: Safe A Z-Score above 3.0 shows that the corporation is safe according to financial figures. Since Kohls is much higher than the minimum level required to be considered safe, Kohls has good reason to be proud of itself financially. Although this statistical measure is only one measurement of overall company performance, investors should feel inclined to invest in Kohls. At the same time, this financial measurement allows Kohls Executives to see that their strategy is working quite well overall. $14,090 $2,590 $4,775 $14,094 $7,338 $10,200 $6,018 $12,109

Ratio Analysis ($ values in millions) Current Ratio (Total Current Assets / Total Current Liabilities): $4,775/ $2,590 = 1.8 Working Capital (Total Current Assets Total Current Liabilities): $4,775-$2,590 = $2,185 Inventory Conversion Ratio (days per year / Inventory Turnover): 365/3.7 = 98.6 Return on Assets (Net Income / Total Assets) = $1,170 / $14,090 = 8.3 Dividend Yield (Latest Dividend per ordinary share / per ordinary share / current market price of share) x 100): $0.32 / $50.86 x 100 = 6.3 The five financial ratios above show that Kohls is currently at favorable financial position in terms of profits, inventory and forecasting abilities, and stockholder feasibility. Return on Assets is one of the most commonly used financial ratios in the business world today. Additionally, it is also one of the most important. The Dividend Yield ratio yield of 6.3 indicates further that Kohls is a smart investment option for any investor looking for a reliable and low-risk company to invest in.