Kohl’s New Retail Experiment

My family has a beach house on Long Beach Island, New Jersey.   I’ve been going there since I was a kid and still try to get back most summers. It’s where I learned to surf (I know- New Jersey surf? We work with what we’ve got).

Anyway, I was back there in September and as my wife and I headed back to the airport, Diane said, “Pull in there.” So I did. It was something called “Off Aisle” by Kohl’s and I gather this is their first store using this concept.

The store is a 30,000 square foot box with a cement floor. It’s filled mostly with racks on which apparel hangs, though they also offered some shoes, kitchen ware and bedding. Kind of like a Ross store.

There are no returns or exchanges allowed. Each article has what I think is the original price tag and a small colored sticker. Each sticker connotes a different price and there were eight stickers. So everything in the store was one of eight prices. I want to say the lowest price was $4 dollars and the highest around $50. Look, I was theoretically on vacation. I didn’t take notes.

According to some of the discussion you can see here, this is at least partly a way for Kohl’s to dispose of returned merchandise purchased online. I have heard that online purchases returned to stores are creating a bit of an inventory management challenge for some retailers. This is Kohl’s attempt to deal with it.

I saw a lot of brands I recognized, but none that made me moan, wail and gnash my teeth.   What was more intriguing was that I thought Kohl’s was already off price- or at least everything is always on sale. I guess this concept is even offer price. What’s next? Tuesday Morning? Goodwill? Bundled, weighted and sunk at sea? It’s amazing where old, unsellable merchandise goes to die.

I can hardly pick on Kohl’s for trying to deal with a common retail problem or taking their distribution one step down. They’ve got lots of company. But I walked out thinking to myself, “How does this end? Does it? When?”

One way it ends, though this is not specific to our industry, is when the Federal Reserve normalizes interest rates. The misallocation of capital occurring due to now seven years of low to in some cases negative interest rates has meant that business models that should have gone away (or would never have been created) have managed to survive.

But if we want it to ever end in our industry, there has to be distinctive product that’s not available everywhere. I actually think it is, conceptually at least, that simple.

The reality is that few brands or retailers that are public or already widely distributed are going to be able to do much but hope their competitors blow up. Nobody voluntarily goes out of business “for the good of the industry.”

I think two kinds of companies may be successful. First, the large one with strong balance sheets and a commitment to the systems and procedures required to get the right product to the right place at the right time. Second, there will be new or small brands that sell as much as they can online and cautiously break into brick and mortar (or temporary stores) only where their products can be merchandised well and they can maintain some exclusivity.

I guess in some ways not much has changed. What I seem to have just said is that being caught in the middle may be a bad thing, as it has often been in the past. I’ll have more to say about this in the next print issue of Transworld Business.