Kohl’s Moves to Enter California
Kohl’s Corp., signaling an anticipated entry into the lucrative Southern California market, has bought 5 1/2 acres in south Orange County to build its first department store in the state.
The Wisconsin retailer is expected to build a 93,000-square-foot store in a 16-acre Rancho Santa Margarita center, according to its co-developer, Regency Centers Corp. in Jacksonville, Fla.
The price and other financial terms were not disclosed. Kohl executives, who have spoken previously about the company’s plans to become a coast-to-coast retailer, weren’t talking Thursday.
“I can’t comment on what other people say,” said Gary Vasques, Kohl’s executive vice president of marketing. “We’ve announced no plans for an entry into California.”
Kohl’s move into the competitive Southern California market could add spice to the often tired image that analysts ascribe to competitors J.C. Penney Co. and Mervyn’s California. Kohl’s niche is mid-market, but with a twist: Its stores are also known for style and value.
That has helped the mid-size chain appeal to both consumers and Wall Street at a time when analysts and brokers have stayed away from other retail stocks. In 1999, Kohl’s reported its fourth consecutive year of earnings growth in excess of 30% and ended that year with a $258.1-million profit. It earned $193.7 million in its first nine months last year.
Expanding to booming south Orange County would make sense for Kohl’s, which operates about 350 moderately priced department stores in 27 states. Its stores thrive in the moderate range between discount mass merchants and expensive department or specialty stores.
Rancho Santa Margarita is a moderately priced area of 43,000 residents in a master-planned community, which became a city last year. The new shopping center, Plaza El Paseo, is planned for the Town Center area where little vacant land is left, said George Wentz, an assistant city manager. A toll road has made the city more accessible and more desirable for commercial development.
Kohl’s also has been considering locations in Anaheim, Corona, Temecula and Ventura, officials in those cities said in December. In some cases, deals were described as close to being signed. The company, however, has not announced any deals.
“It makes sense for Kohl’s to be on the West Coast, but historically, the company has liked to grow contiguously, almost without exception,” said Ellen Schlossberg, an analyst with William Blair & Co. in Chicago.
A move to several cities at once would be consistent with Kohl’s previous entries into new markets, which tend to be big and broad. Last spring, the chain added 32 stores to the New York, Connecticut and New Jersey region.
It will open 15 stores this year in the Atlanta area as part of plans to open 55 to 60 stores. The company also has said it has bid on 12 Boston-area stores formerly occupied by Bradlees stores.
Based in Menomonee Falls, Wis., Kohl’s was founded as a grocery store in the 1920s by Max Kohl of Milwaukee. A son, three-term Democratic Sen. Herbert Kohl, owns the Milwaukee Bucks basketball team. Though the chain has been growing quickly, its Western expansion has so far stopped at Denver.
The Rancho Santa Margarita shopping center is expected to open by early next year. Kohl’s, however, may open its store at a later date to coordinate the opening with that of several other Kohl’s stores in Southern California, said real estate sources who asked not to be named.
Kohl’s isn’t buying the Rancho Santa Margarita land “to sit on it,” said Brian Smith, a Regency managing director. “They’re buying land to open a store at the center.”
The company’s East Coast expansion was telling, said Schlossberg. Word on Wall Street was that the company had scouted Caldor Corp. discount retail chain properties two or three years before that company announced liquidation plans.
“No doubt are they hunting, they are always hunting,” Schlossberg said. The company’s stock, traded on the New York Stock Exchange, closed Thursday at $67.88, down $1.37 a share.
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Kohl Country
Kohl’s Corp., which will expand into the Atlanta area next week, is known for launching several stores at once when it enters new markets. Its westernmost store is in Denver. The company has also said it has bid on 12 Boston-area stores formerly occupied by Bradlees stores.
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Financial Performance
In thousands, except per-share data:
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Year ended Year ended Jan. 30, 1999 Jan. 29, 2000 Net sales $3,681,763 $4,557,112 Operating income $337,863 $448,275 Earnings per share before charges
$1.22 $1.59 Average number of shares 158,067 162,314
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Where the Stores Are
Kohl’s has more than 320 stores in 27 states.
Source: Kohl’s
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