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Going Small Opening Up New Opportunity for Kohl's: Groceries

Kohl's and Aldi Testing Supermarket Concept in a Few Department Stores
March 2, 2018
Kohl's Corp. (NYSE:KSS), which has been paring down merchandise offerings in its full-size stores, is testing a new use for that unused space: groceries.

Kohl's and fast-growing international supermarket chain Aldi have tested two "proof of concept" stores and will be rolling out the concept to five to 10 more stores this year, the company announced yesterday.

Kevin Mansell, CEO of Kohl's, told analysts yesterday the collaboration with Aldi is an opportunity resulting from its ongoing efforts to 'right-size' its store formats.

"We believe the opportunity to leverage our real estate through this effort has benefits on both the top line with increased traffic and the bottom line through expense offsets, both fixed and variable," Mansell said.

In the past year, Kohl’s has retrofitted about 300 of its stores with new interior layouts, concentrating inventory and store displays in smaller spaces. The effort has trimmed as much as 27,000 square feet of space in its 85,000- to 90,000-square-foot stores.

Kohl's expects to roll out this strategy to an additional 200 stores this year.

"We think store optimization is a big idea because, as you know, and I realize we keep repeating this, but we believe in our stores," Mansell said.

Most of Kohl's department stores are located in strip centers or are freestanding and thus more attractive to other retailers looking to grow, the company said.

"In terms of where we see this going, I think we're focused on traffic-driving retailers with good strong balance sheets and outlooks. So certainly, the one that we're doing the pilots with falls into that category," said Mansell, referring to the Aldi test.

The testing won't be limited to groceries, Mansell said, adding that other pairings might include such things as fitness centers.

"I realize that I'm sounding probably pretty optimistic about this, but that's because we think we've got a big idea here," Mansell said, "and most importantly, I think we're very uniquely positioned to execute on it."

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