May 22, 2015
Kohl’s new concept features returned merchandise
It’s hard to think of a retailer that seemingly offers a different sale every hour as getting into the off-price game, but that’s exactly what Kohl’s plans to do with a test of a new concept that features returned clothing, accessories and home goods at deep discounts.
The first new store, Off-Aisle by Kohl’s, will open next month in a New Jersey suburb of Philadelphia. The 30,000-square-foot store, according to the Milwaukee Journal-Sentinel, will initially sell "like new" merchandise and eventually add other goods.
Kohl’s has not offered many details on the new concept, but the test comes at a time when sales from discount outlets are on the rise. Chains such as T.J. Maxx continue to post solid sales gains while Nordstrom Rack’s contribution to its parent company’s top and bottom lines has also grown. Macy’s recently announced plans to test its own off-price format with four stores to open in New York State this fall.
Jen Johnson, vice president of corporate communications, told the Journal-Sentinel that discounts will be significant with some as much as 70 to 90 percent off. All sales will be final. The Off-Aisle store will not accept returns or grant exchanges.
Source: Kohl’s
BrainTrust
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Peter Charness
Retail Strategy - UST Global
Recent Discussions
Discussion Questions
Is Kohl’s a good candidate to open an off-price concept? What will the new stores need to do to stand out from the competition in the same space?
Poll
Returned items are more likely to be viewed as used versus outlet store items that did not move at full or sales price in a retailer’s regular stores or items that were specifically made for them. It is true that items could be returned to a retailer’s regular locations and placed back on the rack but in many of those cases the customer doesn’t realize they are returned items.
This new concept makes it very clear that the item has been returned. I don’t see this concept as a direct comparison to the outlet class of trade. It will be interesting to see but I believe it will be a tough sell.
Kohl’s already has a value perception. This format, if properly executed, may allow Kohl’s to compete in this space without significant cannibalization of its current retail brand.
As noted, the off-price market has some very formidable and successful retailers. It may not be necessary to take share from these other retailers. Instead it provides some flanking protection of its flagship brand and takes advantage of the continued growth in demand for outlet-type shopping.
I mentioned this development yesterday (in the discussion about outlet stores) because of its coverage in my hometown paper where Kohl’s is headquartered. (And once again, I worked for Kohl’s until 2006 but “all I know is what I read in the paper”!) I agree with Steve’s comment that this can be a tough sell unless the returned goods are priced very aggressively compared to the layers of sales, discounts and “Kohl’s Cash” already available. (And it will be interesting to see whether those overlapping discounts can be used in the Off-Aisle store.)
I’m speculating that Kohl’s needs a systemic way to liquidate e-commerce goods returned to its brick-and-mortar stores. I recently bought a spring jacket online that came in a color different than I expected, and I returned it to my neighborhood store. Since Kohl’s doesn’t carry men’s spring jackets in its stores, how do they make these goods go away? You can multiply my example by millions of similar transactions across over 1,100 stores, is my guess.
The question is whether Kohl’s can absorb the logistical costs of consolidating and moving these returns to each market’s “Off-Aisle” store while pricing the goods as aggressively as they will need to sell the product. The pilot store will be a good opportunity to find out.
I’m not sure I see the distinction between returned merchandise and products that just didn’t sell well. Loads of stores, including Sur La Table, World Market and grocery stores have small aisles where customers can find marked-down merchandise any day of the week.
Funny, I consider Kohl’s an off-price retailer already. Does anyone actually pay full list for anything there?
This is a self-limiting concept. As most retailers who start outlet stores know, at some point they grow beyond the capability to fill their outlets strictly from leftovers from the full-price chain and have to start buying direct from manufacturers to get supplied. I can’t say I can imagine where one goes to fill up a lot of stores with returned products. So with a very limited supply of products how many stores can this concept really support?
This could be the true bargain hunter’s nirvana! Unlike the Macy’s venture, where the jury is still out for me, this looks like a real winner. Exactly the concept that will fit with the Kohl’s brand.
They don’t need to do anything to stand out in the space other than advertise. This concept is very different already.
And that’s my two cents.
While the article mentions the growth of T.J. Maxx, I noticed Goodwill Industries experienced expansive growth since 2011. There are a few new Goodwill locations being built here in the metropolitan Atlanta area as we speak. I went into a Goodwill and was shocked as it looked like a scene from Filene’s Basement from the 1990s.
Second-hand and like-new clothing is an untapped market retailers should look into. After all, car dealers sell more used cars than new.
The concept should work for Kohl’s just fine, as long as it is not near a regular store. This is like the bakery close-out stores for day-old bread. If Kohl’s can clear the return merchandise out of their own store it eliminates the returns system which is costly and does not work well for apparel, as apparel is not guaranteed sales merchandise. This is an alternative to packing up last season’s merchandise and reselling it to competitors like Marshalls.
We already have these in stores in Columbus, Ohio—they are called “Goodwill” or “Salvation Army.” I suspect that a lot of Kohl’s buying mistakes that didn’t sell even at 70-80-90% off end up there. The tax deduction might be worth more than selling at 10 cents on the dollar.
This is an opportunity to get rid of merchandise that because of its history (previously bought, used, new but open, etc.) might be hard to move. Worth a try in my mind. Having a separate store is fine. They could even have a separate department within an existing store if the space allows for it. A short term experiment in this area could turn into a viable extension of the Kohl’s business model.
Off-price concepts work better when there is a clear price separation proposition. Kohl’s is already operating as a soft discounter so its Off-Aisle may be relying on proximity more than promotions at this juncture. Also, it’s a worst-kept-secret that many outlet stores carry specially-made, first-run goods these days rather than clearance items from their mainline stores. Kohl’s has recently shifted its focus back to national brands which will make it easier for Kohl’s to find other “homes” for leftover merch without pushing it into Off-Aisle.
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Returned items are more likely to be viewed as used versus outlet store items that did not move at full or sales price in a retailer’s regular stores or items that were specifically made for them. It is true that items could be returned to a retailer’s regular locations and placed back on the rack but in many of those cases the customer doesn’t realize they are returned items.
This new concept makes it very clear that the item has been returned. I don’t see this concept as a direct comparison to the outlet class of trade. It will be interesting to see but I believe it will be a tough sell.
Kohl’s already has a value perception. This format, if properly executed, may allow Kohl’s to compete in this space without significant cannibalization of its current retail brand.
As noted, the off-price market has some very formidable and successful retailers. It may not be necessary to take share from these other retailers. Instead it provides some flanking protection of its flagship brand and takes advantage of the continued growth in demand for outlet-type shopping.
I mentioned this development yesterday (in the discussion about outlet stores) because of its coverage in my hometown paper where Kohl’s is headquartered. (And once again, I worked for Kohl’s until 2006 but “all I know is what I read in the paper”!) I agree with Steve’s comment that this can be a tough sell unless the returned goods are priced very aggressively compared to the layers of sales, discounts and “Kohl’s Cash” already available. (And it will be interesting to see whether those overlapping discounts can be used in the Off-Aisle store.)
I’m speculating that Kohl’s needs a systemic way to liquidate e-commerce goods returned to its brick-and-mortar stores. I recently bought a spring jacket online that came in a color different than I expected, and I returned it to my neighborhood store. Since Kohl’s doesn’t carry men’s spring jackets in its stores, how do they make these goods go away? You can multiply my example by millions of similar transactions across over 1,100 stores, is my guess.
The question is whether Kohl’s can absorb the logistical costs of consolidating and moving these returns to each market’s “Off-Aisle” store while pricing the goods as aggressively as they will need to sell the product. The pilot store will be a good opportunity to find out.
I’m not sure I see the distinction between returned merchandise and products that just didn’t sell well. Loads of stores, including Sur La Table, World Market and grocery stores have small aisles where customers can find marked-down merchandise any day of the week.
Funny, I consider Kohl’s an off-price retailer already. Does anyone actually pay full list for anything there?
This is a self-limiting concept. As most retailers who start outlet stores know, at some point they grow beyond the capability to fill their outlets strictly from leftovers from the full-price chain and have to start buying direct from manufacturers to get supplied. I can’t say I can imagine where one goes to fill up a lot of stores with returned products. So with a very limited supply of products how many stores can this concept really support?
This could be the true bargain hunter’s nirvana! Unlike the Macy’s venture, where the jury is still out for me, this looks like a real winner. Exactly the concept that will fit with the Kohl’s brand.
They don’t need to do anything to stand out in the space other than advertise. This concept is very different already.
And that’s my two cents.
While the article mentions the growth of T.J. Maxx, I noticed Goodwill Industries experienced expansive growth since 2011. There are a few new Goodwill locations being built here in the metropolitan Atlanta area as we speak. I went into a Goodwill and was shocked as it looked like a scene from Filene’s Basement from the 1990s.
Second-hand and like-new clothing is an untapped market retailers should look into. After all, car dealers sell more used cars than new.
The concept should work for Kohl’s just fine, as long as it is not near a regular store. This is like the bakery close-out stores for day-old bread. If Kohl’s can clear the return merchandise out of their own store it eliminates the returns system which is costly and does not work well for apparel, as apparel is not guaranteed sales merchandise. This is an alternative to packing up last season’s merchandise and reselling it to competitors like Marshalls.
We already have these in stores in Columbus, Ohio—they are called “Goodwill” or “Salvation Army.” I suspect that a lot of Kohl’s buying mistakes that didn’t sell even at 70-80-90% off end up there. The tax deduction might be worth more than selling at 10 cents on the dollar.
This is an opportunity to get rid of merchandise that because of its history (previously bought, used, new but open, etc.) might be hard to move. Worth a try in my mind. Having a separate store is fine. They could even have a separate department within an existing store if the space allows for it. A short term experiment in this area could turn into a viable extension of the Kohl’s business model.
Off-price concepts work better when there is a clear price separation proposition. Kohl’s is already operating as a soft discounter so its Off-Aisle may be relying on proximity more than promotions at this juncture. Also, it’s a worst-kept-secret that many outlet stores carry specially-made, first-run goods these days rather than clearance items from their mainline stores. Kohl’s has recently shifted its focus back to national brands which will make it easier for Kohl’s to find other “homes” for leftover merch without pushing it into Off-Aisle.