Retailer Kohl's opens 37 stores, plans more for 2010

The global recession may turn out to be a boon for Kohl's Corp. (KSS), the nation's fourth-largest department store chain.

Kohl's opened 37 stores Wednesday, mostly in California, bringing its 2009 total to 56 new locations. Expansion might seem like an odd strategy for a retailer right now, with consumer confidence flat and Halloween sales expected to be down. But the Menomonee Falls, Wisconsin-based company, is one of several American corporations fattening up during the downturn.

Kohl's has stayed afloat (barely) during the past year, with recent same-store sales up slightly even as the rest of the retail sector struggles. Chairman and Chief Executive Officer Kevin Mansell has taken advantage of that relative position -- 35 of the new Kohl's stores were once Mervyns locations, purchased in a liquidation sale for about $4 million in a joint deal with Forever 21.

So how is Kohl's keeping cash flow steady while chain's like Mervyns, Gottschalks, and Goody's are filing for bankruptcy? The obvious answer is that during a recession, luxury consumers return to value, shunning Barney's and Bloomingdale's for affordable options like Kohl's and its competitors J.C. Penney and Target. Yet plenty of mid-tier retail outlets (including the three mentioned above) are in terrible shape.

Mansell told Bloomberg News last week that two things keep Kohl's ahead of competitors: partnerships with brand names like Vera Wang and Avril Lavigne, and the boring-but-important logistics of inventory management -- making sure shelves are well-stocked and items well-placed. He's also benefited from others' failures -- it costs just $7 million to convert a Mervyns into a Kohl's, compared to $11 million to build a brand-new store.

Mansell remains on the hunt for more such purchases to go with plans to open 25 Kohl's stores in 2010. Nevertheless, its expansion seems to be slowly winding down -- this year's 56 new stores are fewer than the 75 opened in 2008 -- so Kohl's may hunker down and focus on the 1,059 stores it now operates, before the next buying binge.
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