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Kohl’s CEO gets small assist in fight with activists, thanks to Amazon partnership

March 3, 2021, 3:43 PM UTC

Kohl’s CEO Michelle Gass has needed a win in her brewing battle with activist shareholders unhappy with the retailer’s chronic stagnation.

And she got one, modest as it was, in the form of winning 2 million new customers last year thanks to her company’s partnership with Amazon in which Kohl’s operates counters at its own stores that handle returns for the e-commerce giant. The idea has been to get more people to come to stores, especially young consumers new to Kohl’s, and hopefully shop while they’re there, enticing them by giving them a Kohl’s coupon.

Her disclosure on Tuesday about the impact of the Amazon returns service was the first time Kohl’s shared any specific data about the partnership. It came eight days after a group of activist investors announced plans to replace the majority of Kohl’s board, and slammed its strategy, including questioning the benefits of working with Amazon, a retailer that has eaten into Kohl’s market share.

Gass, CEO since 2018, told Wall Street analysts that one-third of those new customers were the younger shoppers Kohl’s covets, a data point that helps her defend part of her strategy. (Kohl’s had 65 million shoppers in all last year.) Many analysts have long theorized that many shoppers come into Kohl’s to return an Amazon-bought item and then leave. But Gass says they are boosting business at Kohl’s stores, without quantifying how much more.

“It’s really across the entire store,” Gass tells Fortune. What’s more, she said, a bigger percentage of the Amazon shoppers popping in to make a return last year had actually shopped while at Kohl’s compared to the previous year.

The Amazon tie-up, announced in 2017, is a centerpiece of Gass’s efforts to return Kohl’s to growth after years of stagnation that preceded a 20% drop in sales last year, in large part because of the pandemic. Her other major moves have included a big push into more activewear and, more recently, landing a deal to host Sephora’s highly popular beauty shops inside Kohl’s stores, with the first ones coming on line this year.

With the pandemic’s grip on Kohl’s business easing, Gass announced new steps to spur the retailer’s hoped-for turnaround. A key initiative there is to “refresh” some 675 stores in the coming years, taking advantage of the remodeling work Kohl’s will have to do anyway to set up the Sephora shops so that customers don’t just come into Sephora and leave without perusing the rest of the Kohl’s. That will include new lighting, fixtures, and a drop in assortment, reducing clutter in the process and rejiggering layout to support Kohl’s shifting focus to areas like sportswear.

“We will invest in the store itself; we will reflow categories to be reflective of our strategy,” Gass says. This will help address an oft-cited criticism of Kohl’s by analysts: stores that look dated. Kohl’s has lost a lot of market share to Target for a number of reasons. One of those reasons has been an aggressive remodeling plan that has helped rejuvenate Target. (On Tuesday, Target announced an accelerated remodeling program.)

“Execution in shops is not terrible, but there is more to do to make the shop floor really compelling,” Neil Saunders, managing director of GlobalData, wrote in a research note.

As 2020 progressed, sales declines moderated, with a 10% decline in the holiday season quarter. Kohl’s expects sales to rise by a mid-teens percentage this year. (That would still leave it well below 2019 levels.)

Gass is betting that as the pandemic recedes, consumers will resume more typical shopping patterns and spend more. And a lot of that will come to Kohl’s because many of its rivals withered during the pandemic.

“Shopping overall is going to increase. We’re going to benefit from that,” she says. “We’re going to benefit from the disruption that has happened.”