Kohl’s Follows Mommy Track as It Sets Up Shop in Region

The young mothers, toddlers in tow, cluster in the clubhouse of a housing tract in Ladera Ranch to mingle and chat, blissfully unaware that they are in the cross hairs of one of the nation’s most aggressive retailers.

Next month, a Kohl’s department store will open in the south Orange County suburban community, testing the loyalty of consumers who have been shopping at mass merchants such as Target and specialty apparel retailers such as Old Navy.

“I’ve been looking at the commercials on TV and trying to figure out what it is,” said Kim Johnson, a 38-year-old attorney who works from home. She says she will give Kohl’s a try be- cause the store is within stroller-pushing distance.

“For me, that would be a huge factor,” she said. “It’s all about the kids now.”

It’s all about the moms such as Johnson for Wisconsin-based Kohl’s Corp., which has come to California in its intensifying battle for Middle America -- families that earn about $35,000 to $100,000 and represent the vast majority of the nation’s consumers.

“The big business is right in the middle,” company President Kevin Mansell said. “We realized that, and we went after it with a vengeance.”

To mark its expansion into the West Coast, Kohl’s will open 28 stores on March 7 in suburbs throughout Southern California.

To hear Mansell tell it, the arrival of Kohl’s will give the region’s woozy economy an invigorating slap, adding 4,200 jobs with the first wave of stores, sparking development in the Inland Empire around its large distribution center and bringing more business to local apparel manufacturers.

It also will send a shudder through retailers from Ventura to San Diego, already among the nation’s most competitive markets.

Virtually all of Southern California’s major department stores can expect customer defections, analysts say, including Macy’s, Robinsons-May and especially Mervyn’s, a subsidiary of Target Corp. that is seen as Kohl’s most direct competitor. Specialty retailers such as Gap Inc. and Abercrombie & Fitch Co. could be vulnerable too.

“I think there’s going to be a fight in Southern California,” said Robert Buchanan, an analyst with A.G. Edwards & Son. As Kohl’s swings open its doors here, he said, other merchants will have to “put up their dukes.”

Yet for Kohl’s, comfortably settling into Southern California’s dense retail landscape may not be as easy as its experiences elsewhere. The cutthroat environment is one reason Kmart Corp. is preparing to shutter 19 more stores in California. At the same time, Wal-Mart, the nation’s biggest retailer, is planning to expand in the state.

“I am convinced we are the most competitive retail marketplace in the country,” said George Whaling, chief executive of Retail Management Consultants in San Marcos in San Diego County. “I think Kohl’s will do OK here, but Kohl’s is not going to own the marketplace, like they do in some places.”

Consumers such as Barbara Schankerman, a substitute teacher and mother of two in the Inland Empire, have many other options if Kohl’s doesn’t suit them. Schankerman, 36, favors Wal-Mart, Target and Costco. Although eager for the Kohl’s in Victorville to open, she also knows that across the street from that new store is a Mervyn’s, a Sears, a JCPenney and a Gottschalks.

“I’ll start here,” she said, standing outside the not-yet-open Kohl’s. “And if I don’t find what I want, I’ll go to one of the others.”

‘Nothing Goes Wrong’

Like other middle-market department stores, Kohl’s sells well-known brands of apparel, shoes and home products at moderate prices.

What distinguishes the retailer, analysts say, is its bigger selection of brand names and its neat, well-stocked stores, which typically are located in easy-to-access retail strip centers, not inside malls. At about 88,000 in square feet, Kohl’s locations are smaller than most department stores. They boast “racetrack” layouts for easier maneuvering, large shopping carts with built-in baby seats and centralized checkout stands.

Typically, first-time shoppers are “underwhelmed” by the Kohl’s experience, said Donald Trott, an analyst with Jefferies & Co. But eventually, the retailer wins them over.

“One of the things you find with Kohl’s is that nothing goes wrong, as opposed to things being uniquely right,” he said.

Elsewhere in the country, that has helped Kohl’s lure moms and others who have pulled back from department stores in the last decade in favor of trendier specialty stores and cheaper mass merchandisers. By offering the bargains and convenience of a discounter with the sensibilities of a department store, Kohl’s has steadily advanced into 33 states, doubling its store count to 457 in the last four years and increasing sales to $7.5 billion in fiscal 2002.

Although many merchants reported disappointing holiday sales, Kohl’s did comparatively better than most. And its performance improved in January as same-store sales rose 5.5%. On Friday, the company’s shares rose $2.25 to $52.64 on the New York Stock Exchange; still, the stock remains down 24% in the last year as the retail industry as a whole has struggled.

Southern California consumers probably will benefit from Kohl’s presence, even if they don’t shop there. In response to the chain’s arrival, experts say, competitors are likely to plump up their offerings, lower their starting prices and mark them down faster if they don’t sell right away.

“More choice is always a positive thing,” said Tom Lieser, senior economist with the UCLA Anderson Forecast. “And it’s likely to cause some price competition, which is not good for profits but is good for the consumer.”

Already, some of the industry’s biggest players, including Sears, Roebuck & Co. and J.C. Penney Co., have made alterations to compete better. Even Target and Wal-Mart Stores Inc. have boosted their apparel offerings to head off the challenge from Kohl’s, some analysts say.

“Sears has made some changes, beefing up areas where we do compete directly with Kohl’s, head to head,” Sears spokeswoman Peggy Palter said. For example, Sears bought apparel company Lands’ End last year and will have clothing bearing that well-known brand in all its stores this year, she said.

Mervyn’s in Its Sights

Mervyn’s, however, may have the most to lose as Kohl’s moves into California. It is the department store most similar to Kohl’s in size, prices and products and has been a weak link for its Minneapolis-based parent, Target. In fiscal 2002, sales at Target stores open at least a year grew 2.2%, whereas comparable-store sales at Mervyn’s slid 5.3%.

Mervyn’s, which operates almost half its 264 stores in California, won’t comment on its widening battle with Kohl’s, except to say it has competed successfully with the larger chain in other markets. Mervyn’s is making improvements to all its Southern California stores, spokesman Greg Terk said.

It also is strengthening ties to the Latino community, which represents about 30% of its customers.

Last year, Mervyn’s launched a line of what it calls “Mexican home products,” including pottery and reproductions of art by Diego Rivera. At its store in Montebello, Terk said, the retailer staged a three-day celebration of Latino heritage and culture.

Kohl’s is zeroing in on the same customer, whom it practiced wooing in El Paso, where it hired bilingual workers and advertised in Spanish for the first time. Its California stores will have signs in Spanish, said Julie Gardner, senior vice president of marketing.

In recent years the local retail scene has been dramatically altered by the arrival of many discounters and the rapid expansion of specialty stores. Despite this bullet-sweating competition, industry insiders say, Kohl’s may fill a gap created in recent decades as a string of department stores shut down and consolidation blurred the identities of others.

I. Magnin, J. Magnin, Broadway, Bullocks, May Co., Robinsons -- these chains were “virtually everywhere,” said Ilse Metchek, director of the California Fashion Assn. in Los Angeles. “It will be very interesting -- and very trend-setting -- to see whether consumers will gravitate back to an all-purpose retailer.”

The last time a retailer arrived in Southern California with potential to kick up a fuss was in 1978 when Nordstrom Inc. came to town, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

“Everybody was saying, ‘What’s that shoe store out of Seattle going to do here?’ ” Kyser recalled. “They found out.”

Today, the chain has 45 Nordstrom and Nordstrom Rack stores in California and is considered one of the state’s strongest shopping center magnets, along with Sears, Kyser said.

Whereas retail experts fret over new competition, unemployed residents have snapped up Kohl’s jobs, which are nonunion. Kohl’s said it received as many as four applications for every job it filled.

The company’s payroll, which includes salesclerks, maintenance workers and store managers, represents a mere drop in Southern California’s job pool, and analysts say it is not clear what effect the company will have on the local economy.

Positive Ripples for State

Still, the arrival of Kohl’s is “a nice shot in the arm” for the state, said Alec Levenson, a labor economist at the Marshall School of Business at USC. “There’s always a ripple effect.”

The ripple could be more like a wave in San Bernardino, where Kohl’s 576,000-square-foot distribution center has become the focal point of the redevelopment of Norton Air Force Base, which erased 10,000 jobs when it closed in 1994.

With Kohl’s as an anchor, developers plan to make the former base part of a hub that would ship cargo by truck, train and plane. Signing Kohl’s should attract more tenants to the site, said John Husing, owner of Economics & Politics Inc., a Redlands consulting firm.

“You need the first one to get to the others,” Husing said. “It’s a major breakthrough.”

Apparel manufacturers also expect to gain from the Kohl’s presence here.

Los Angeles-based Authentic Fitness Corp.’s Speedo division could significantly enlarge its business as a result of Kohl’s expansion, said Michael Nicklas, the unit’s senior vice president. Speedo sells swimwear, flip-flops, goggles and other items to Kohl’s. In addition to shipping to more stores, Speedo has begun making new products for Kohl’s, including T-shirts with beach scenes, which reflect the Southern California “state of mind,” Nicklas said.

Local real estate brokers, meanwhile, hail the retailer’s arrival as a way to fill vacancies left by others that have vanished.

The company has grabbed three empty buildings, including a former Broadway store in Huntington Beach and what was once a JCPenney in the West Hills section of the San Fernando Valley. But 25 of its stores were built from the ground up, at a cost of $5.5 million apiece on sites that are leased and $13 million each on property Kohl’s has bought.

Kohl’s has staked out the former Boeing Co. plant in Downey as a potential store site, Kyser said, along with other spots in the L.A. area. Farther south, he said, the company plans to open stores in Chula Vista, Oceanside, San Marcos and Rancho San Diego; it is scouting store sites in the Sacramento area as well.

Kohl’s won’t say where it intends to expand in California. It simply will go where “the moms” are, said Mansell, the company’s president.

“Our target customer is the mom with two or three children at home,” he said. “Where you see that, you should see a Kohl’s store going up.”