Dive Brief:

• Kohl’s on Tuesday announced a series of planned changes to its brick-and-mortar and online operations that entail opening more small-format stores to its footprint and boosting its fulfillment network.

• During the third quarter, the discount department store expects to open four smaller (about 35,000 square feet) stores, adding to the eight opened in 2016. They will be in North Smithfield, RI; Blue Ash, OH; East Windsor, NJ; and Montebello, CA.

• Meanwhile, the retailer's new 937,000-square-foot facility in Plainfield, IN, is set to open this month and will be dedicated to processing, filling and shipping website orders. The facility is equipped with technology meant to maximize productivity and throughput, according to a press release. Kohl’s already operates fulfillment centers in San Bernardino, CA; Edgewood, MD; Monroe, OH; and DeSoto, TX. Kohl’s stores also fulfill and ship digital orders.

Dive Insight:

Kohl’s describes its smaller stores as “flexible and efficient, with fixtures that can be adapted by department and for localized merchandise and assortments.” More broadly, the new stores represent an expansion of the kind of smaller, more urban stores that Target is also focusing on in order to reach younger, more urban shoppers. 

The retailer in its most recent quarter reined in its sales and traffic declines, thanks to cost-cutting and improvements to stores, all of which led Global Data Retail analyst Anthony Riva to suggest the retailer is ready to open more stores.

CEO Kevin Mansell in a statement Tuesday emphasized physical stores as being "at the core of our omnichannel strategy."

"[W]e will continue to invest in them by opening smaller formats, rightsizing and optimizing our selling space and working to ensure that shopping in our stores is an engaging and inspiring experience for our customers,” he said. “We have set a goal to be the best-in-class omnichannel retailer, and opening our fifth e-commerce distribution center will support the delivery of online orders faster and more efficiently to customers nationwide.”

Despite its recent troubles, Kohl’s benefits from advantages it enjoys over rivals like Macy’s and J.C. Penney, two retailers that are tied to malls and have been closing stores. 

“Kohl’s has the best ROI, the best profitability and seven points less in cost because they’re off the mall, not on the mall,” Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates Inc., told Retail Dive. “They have the lowest cost structure. They’re like T.J. Maxx — 80,000-square-foot stores but a racetrack format with central checkout. Kohl’s has the least adjustments to make and ... the best matrix because they’re not a high-cost operator."