With new private label, Kohl's stakes strategy on the athleisure boom

Dive Brief:

Kohl’s on Tuesday unveiled a strategy centered on what it called "a new vision: to be the most trusted retailer of choice for the active and casual lifestyle." The move entails expanding its active assortment to 30% of sales, from 20% last year; tripling beauty sales; and focusing on women’s, plus and outdoor, according to a company presentation to investors.
Key to the plan is a new athleisure private label dubbed FLX, which will be available in select stores and online beginning in March, according to a press release Tuesday. The retailer implemented a 25% increase in square footage dedicated to the active category in around 160 stores.
Those announcements followed another on Monday detailing Kohl’s new partnership with footwear brand Cole Haan, arriving at select Kohl's stores and online beginning next spring.

Dive Insight:

Kohl's is staking a lot on a category that was already on the rise before the pandemic, and now represents daily dressing for many consumers who continue to work from home.

Strengthening its association with a winner is wise, although competition is getting fierce as plenty of rivals do the same. Gap Inc., for example, in recent months has boosted its already high expectations of its Athleta activewear brand.

"Notably, the race to expand athleisure is happening by and large across retail as management teams industry wide see the pandemic as creating lasting changes," Wedbush analysts led by Jen Redding said in a Wednesday client note. "As retailers increase both market newness and supply in athleisure, we expect incremental competition to weigh on merchandise margins within athleisure as the pandemic extends."

To make room for the activewear expansion, Wedbush expects "reductions in prime selling space dedicated to men’s dress clothes, handbags, and jewelry."

In a press release, Kohl's outlined a litany of other moves, including "an end-to-end supply chain transformation, sourcing optimization and SG&A expense efficiency across store labor, marketing and technology." The company said that will help reach its new, higher operating margin target of 7% to 8%, without providing how much time that would take.

Kohl's didn't provide revenue targets, either, noted Credit Suisse analyst Michael Binetti on Wednesday, but added that the company nevertheless "will be a survivor in wake of unprecedented [department store] closures."

Grabbing share left on the table by rivals certainly won't hurt Kohl's new strategy. But ultimately it's up to its customers, according to Wedbush. "Although we commend management for strategically navigating in a challenging environment in a proactive manner, for now we prefer to monitor how plans and execution progress, as well as take a wait and see approach as to read-throughs on customer response," Redding said.