Kohl’s Is Making Upgrades in Stores, Operations, and Merchandise, but Lacks a Competitive Edge

We assign a no-moat rating to Kohl's, which has had consistently declining sales over the past 10 years. We think its competitors, such as wide-moat Amazon and other online sellers, discount, and specialty retailers, will continue to siphon apparel sales from it and other department stores. Thus, while Kohl’s has responded to threats with increased e-commerce, improved merchandising, and an enhanced loyalty program, we project its operating margins will be in the midsingle digits in the long run, well below prepandemic levels. Kohl’s has strengths, including its reputation for reasonable prices, off-mall locations, and more than 30 million loyalty members. However, that its store visitation has been declining, and sales per square foot have fallen since 2010 despite an increase in annual e-commerce from about $700 million in 2010 to around $5 billion at present. We believe Kohl’s large fleet of big-box stores is unnecessary in an increasingly fragmented market.