Kohl's Case Study Kohl's Corporation

Kohl's Case Study Kohl's Corporation is a department store chain founded in 1962. The company's headquarters are located in Menomonee Falls, Wisconsin. The company was founded by Max Kohl, who established the first Kohl's supermarket in 1946, which later developed into Kohl's Food Stores chains (Wikipedia, 2008). When the first Kohl department store was established in 1962, it was positioned between the higher end department stores and the discounters. However, a decade later, the department store started to develop after the British American Tobacco Company bought a significant part of Kohl's Corporation.

The development process continued, and the company was purchased in 1986 by a group of investors. In 1992, the company became public. Currently, Kohl's is the 23rd largest retailer in the United States, operating 1003 stores in 48 states. Most of customers' needs can be fulfilled by Kohl's, where customers can find national brand-name merchandise, exclusive labels, private branded goods. The variety of goods sold in Kohl's department stores includes: apparel, shoes, and accessories for women, children, and men.

The list of products commercialized at Kohl's includes home products like: small electronics, kitchen electrics, electric shavers, toothbrushes, vacuums and floor care, bedding, toys, and luggage. Kohl's also commercializes exclusive lines like: Ralph Lauren, Vera Wang, and others, and also the company's private brands. The company's mission is to become the leading value-oriented, family focused, specialty department store. Strategic Analysis Industry analysis Kohl's is activating on the retail market in the apparel sector mostly.

As most reports reveal, the global apparel market is subject to change in the next period of time. These changes will also affect the apparel market in the United States. It is expected that classic outsourcing destinations will decrease in their importance, while other outsourcing destinations will be discovered and introduced in the global circuit. In 2007, the global apparel market accounted for $600 billion. Of this amount, 82% is ensured by the world's top 15 exporting countries.

As mentioned above, it is expected that India and China, the most important outsourcing regions in the apparel industry will register significant decreases in their activity. Such setbacks are expected to emerge because of numerous strikes that take place in these countries, but also because of increasing manufacturing and transportation costs (Just Style, 2008). Customers' needs and preferences will also go through some changes also, as both buyers and suppliers will orient towards value and speed to market, instead of orienting towards lowest costs.

As a consequence, it is expected that prices will increase, but the provided quality will also be higher. This way, even if customers will pay more for the clothes they buy these could be considered as a better investment than buying cheaper clothes of a poorer quality. Because of the economic slowdown in 2008, countries that export in the United States mainly reported mild decreases in the quantity of exported products. However, certain countries will register significant growth in the apparel outsourcing industry. These regions are located in Central America.

The reason behind this activity growth consists in special trade concessions. The same advantage will apply in the case of some African countries that will continue to benefit from the African Growth and Opportunity Act. It is expected that these countries' exports to the United States mainly, but to other destinations also, will significantly increase. The growth and development of the apparel outsourcing activity in these countries is also due to the decreasing competitiveness of Chinese firms.

These firms' activity is slowed down because of increased labor costs, RMB strengthening, increased raw materials' costs, exports tax rebates reduction. The United States will remove import restrictions, to some of the Chinese apparel categories, which will lead to increased imports. Even so, it is expected that China and India will lose much of their outsourcing advantage, in the detriment of Vietnam and Bangladesh. The United States apparel production is going through rough times, since the apparel production has continuously decreased over the past decade, reaching its lowest level in 2008.

The average price per unit has increased 25%, given the fact that customers prefer higher quality and higher priced articles. Competitors Kohl's most important competitors are: Bloomingdale's Macy's Sears Kmart The Great Indoors The general economic situation of these companies is the following: Table 1 - Macy's financial situation Financial section Net Sales Gross margin Net income Net income per share Shareholders' equity Note: the values are expressed in millions of dollars, except per share data. Source: Macy's 2007 Annual Report.

As one may observe, the values reported in 2007 for the financial sections included in the table are lower than the values reported in 2006. Table 2 - Sears financial situation Financial section Total revenues Net income Net income per share Total assets Long-term debt Note: the values are expressed in millions of dollars, except per share data. Source: Sears 2007 Annual Report. As one may observe, just in the case of Macy's, Sears' most important financial data reveal that the company's total revenues, net income, and total assets have decreased in 2007 compared to 2006.

One of the positive aspects is that the company's long-term debt has decreased also. However, the net income per share has significantly decreased in 2007, being almost reduced to half of the value reported in 2006. Even so, Sears' net income per share is almost triple that that of Macy's.

Macro-environment analysis Political and legal forces The political environment is specific for each country and it reflects society's structure, social classes and their role in the society, political forces and the relationships between them, the state's degree of implication in the economy, political stability on internal, regional, and international level.

The most important organizations and associations that influence the apparel market in the United States are: American Apparel and Footwear Association - AAFA American Apparel Producers' Network - AAPN American Fiber Manufacturers Association - AFMA The American Association of Textile Chemists and Colorists - AATCC American Cotton Shippers Association - ACSA The Government is also responsible for a series of treaties and acts that influence the cooperation between the United States and importing countries. The legal environment that characterizes outsourcing countries also influences the apparel industry.

Economic forces The economic environment takes into consideration the economic activity, the general development level, employment and unemployment, the financial situation, and others. These environmental factors affect directly or indirectly the market's situation and also the company's situation: they determine the volume and structure of the goods supply, the level of incomes, the level of prices or competition. The economic environment must be analyzed in correlation with the demographic environment.

The most important economic and demographic factors that affect the apparel market and the company are: Population growth rate: 0.88% GDP real growth rate: 2% GDP per capita: $45,800 GDP composition by sector: agriculture - 1.2%, industry - 19.8%, services - 79% Unemployment rate: 4.6% Inflation rate: 2.9% Investment: 15.5% of GDP Household income or consumption: lowest 10% - 2%, highest 10% - 30% Public debt: 60.8% of GDP Exports: $1.148 trillion Imports: $1.968 trillion Exports partners: Canada 21.4%, Mexico 11.7%, China 5.6%, Japan 5.4%, UK 4.3%, Germany 4.3% Imports partners: China 16.9%, Canada 15.7%, Mexico 10.6%, Japan 7.4%, Germany 4.8% Corporate level strategy Porter's five forces The threat of substitute products: As mentioned above, Kohl's is a retailer that commercializes apparel, footwear, and small electronic products.

There are obviously no substitutes for clothes or footwear, so there is no threat from this point-of-view. Even more, it seems that customers are orienting towards higher quality and higher priced products. The threat of new competitors entering the market: It is quite difficult to establish a department store chain that would be present nationwide, since it took a few decades for Kohl's to develop into what the company is today. Therefore, it is expected that the company will not have to face new strong competitors.

The intensity of competitive rivalry: This market segment includes a few large competitors, like Bloomingdale's, Macy's, Sears, and smaller competitors also. However, all these competitors have reported lower incomes and sales in 2007 compared to the previous year. The bargaining power of customers: Given the economic slowdown that characterizes the entire world currently, it is expected that Kohl's will have to lower its prices for certain products so that the number of customers will not decrease. This is the moment for implementing a series of campaigns and promotions.

The bargaining power of suppliers: The apparel market is characterized by raw materials prices increases. It is expected that this situation will maintain in the following period of time also. Outsourcing destinations like China and India have increased their production and transportation costs. Also, the United States apparel industry has reached its lowest level since 1963, which will probably affect the company's competitors also.

Raymond Miles and Charles Snow strategic analysis Raymond Miles and Charles Snow have classified companies into four strategic types: Defender Prospector Analyzer Reactor Kohl's seems to be a defender from this point-of-view. The reason behind this affirmation relies on the fact that Kohl's is a mature company in a mature industry that aims at protecting its market position through efficient production, strong control mechanisms, continuity and reliability (12manage, 2008). The main objective is to therefore maintain a stable level of market share or even to increase it.

It is best that Kohl's activates in a stable environment. Therefore, given the latest economic trends that affect the global economy it is expected that the company will register sales and income decreases, the same as its competitors. Therefore, it is recommended to implement strategies that allow the company to maintain low costs, so that prices will not be increased. This way, the company is able to ensure the same number of customers as before the financial crisis.

Such a defender type company should best rely on long-term planning, given the slow modifications that characterize the macro-environment. However, it is recommended to implement a short-term strategy also, in order to overcome the negative aspects that emerge because of the financial crisis.

SWOT analysis The company's strengths are: Tradition Stability National presence High quality Acceptable prices Customer-oriented strategy The company was established a few decades ago and the fact that Kohl's has continuously developed since its beginning proves that stability is one of the most important strengths a company could have. Even more, given the financial crisis that characterized the global economy, customers will appreciate stability. Customers are now oriented towards higher quality and higher priced products. Kohl's has acknowledged this orientation that is followed by the company's strategy.

The company's weaknesses are: Large number of employees Long-term strategy The company is operating approximately 1003 stores nationwide that require many employees at store level and at corporation level. This means that the company does not have a flexible organizational system. Also, given the fact that Kohl's is a defender company, its strategy is a long-term one. As mentioned above, given the new economic trends, such a strategy might not be effective. The company's opportunities: New outsourcing countries It is recommended that the company maintains prices as low as possible.

This means that the company's products require production and transportation that can be achieved at low costs. Such production outsourcing countries include Vietnam and Bangladesh. The company's threats: Financial crisis Although the company may not be severely affected by the financial crisis in a direct manner, it may be affected indirectly through its customers that may choose to cut back on unnecessary goods. Recommended strategy In more normal and stable economic circumstances, it would be recommended that the company develops a long-term strategy based on growth and international expansion.

However, given the financial crisis that characterizes the global economy, it is recommended that Kohl's follows a short-term strategy until economic matters return no normal and the macro-environment will be more stable. It is expected that.