Kohl's is defying the retail meltdown — and it's more proof that malls are dying (KSS)


Kohl's is defying the retail apocalypse.

Department stores have been shutting down hundreds of stores following years of declines in sales and traffic.

Kohl's same-store sales were virtually flat in the most recent quarter, following a 1.8% decline in the period last year.

The company's quarterly profit jump 48% and executives said transactions, which is a measure of traffic, grew in July — indicating positive momentum heading into the critical back-to-school shopping season.

Meanwhile Macy's, which is closing 68 stores this year, said Thursday its same-store sales fell 2.5% and transactions dropped 5.5%.

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Kohl's has managed to improve traffic without closing a ton of stores because it's somewhat immune to the massive drop-off in foot traffic to malls.

Nine out of 10 Kohl's stores are located in suburban strip malls and other areas away from enclosed shopping malls, many of which have been decimated by falling traffic, according to Kohl's CFO Bruce Besanko.

"You should not expect to hear anything about store closures this year," Besanko said.

Instead of closing stores, Kohl's has been investing in them.

Retailers stores closing 2017_AugMike NudelmanThe company has been rolling out smaller stores that are about 35,000 square feet (about one sixth the size of a Macy's store), improving inventory management, and investing in bringing in more national brands like Under Armour. That strategy appears to be paying off: the company said overall athletic-wear sales soared 14% during the quarter.

"To a large extent, Kohl's has managed to buck the negative customer traffic trend by making its stores, and the product within them, more relevant," Anthony Riva, an analyst at retail consulting firm GlobalData Retail, wrote in a research note.

Kohl's has also been boosting profits by reducing its clearance sales and investing in online initiatives like "smart basket," which gives customers discounts for picking up items in stores instead of shipping them to their homes.

"Kohl's has charted a sensible course through the choppy waters of department store retailing," Riva said.

But Kohl's still has a long way to go to improve business, and its shares fell sharply Thursday — down more than 6% in mid-day trading — against the backdrop of disappointing earnings from other department stores including Macy's and Dillard's.

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