Kohl’s Under Attack Again By Activist Investor

Here we go again. The hedge fund, Macellum Advisors, is making a third attempt to overhaul Kohl’s board and is advising the company there will be another proxy fight if the company fails to immediately address the issue.

The attack is directed at board chairman Peter Boneparth and board members Stephanie Streeter, John Schlifske, and Jonas Prising. In the opinion of Jonathan Duskin, Macellum’s CEO, they failed to “adequately support Kohl’s senior management.” Of course, Duskin was roundly defeated in his previous attempts to unseat board members and seat himself and other members of his group.

Kohl’s had been in negotiation to sell itself for some time – to no avail. Now, with higher interest rates and the accompanying higher cost of money, it is unlikely that the company’s management will entertain a deal. The stock traded in the $60 range the last time. Now, it is trading in the $26 range.

Michelle Gass is an effective CEO of a company that still markets its wares the old fashioned high/low way. Last Saturday, I saw sale merchandise with an additional 40% off, plus Kohl’s bucks, and a $35 dollar minimum purchase for free shipping thrown into the offer. Many other retailers have opted for everyday low-price policy with some special sale items as well. With so much promotional activity going on, I think customers no longer trust the high/low pricing policy that Kohl’s insists on maintaining every weekend.

In addition, Kohl’s long-term credit rating has fallen to “junk” by S&P Global Ratings. To add more complication, the company last year lost chief merchandising officer Doug Howe and chief marketing officer Greg Revelle. Their departures were sudden and unexpected. Were they dismissed because they wanted to change the pricing policy or because they did not come up with convincing events?

At the end of this fiscal year, Kohl will have 600 Sephora units in operation in their stores (250 more are slated for next year.) That is a big deal, since Sephora attracts young customers. Still, 600 stores had been torn apart because of the new layout and the new emphasis on the Sephora brand. This was certainly disruptive to long-term customers; it seems the stores may not be paying enough attention to their loyal shoppers and not rewarding them for their loyalty.

Certainly, Kohl’s has big challenges. To me, the biggest issue is all the sales activity going on. Sears Roebuck, in its heyday, ran as many as 104 sales a year. It was an unconvincing effort then, and it is an unconvincing effort now. I think Kohl’s management concentrates on weekend events – almost too exclusively, I would like to see an effort to feature wanted brands more prominently and an effort to feature gifts for the holidays. While JCPenney and Macy’s have already introduced us to their holiday toy departments (Macy’s has Toys “R” US departments starting this year), there has been no news from Kohl’s about their toy department and why customers should shop there for toys or any other gifts.

POSTSCRIPT: Macellum’s repeated effort to gain control of the company is upsetting. He (Macellum) is said to own 5% of the outstanding stock. He wants in, and unless Kohl’s management changes the company’s drive for business, he might be successful. It would be a pity. I see good potential for growth for Kohl’s if left alone and given a chance to develop and execute new strategies.