As Other Retailers Close More Stores, Kohl’s Values Keeping Them Open, Integrating Old with New

Properly managing a company’s shift from the old to the new can markedly improve business success. Online shopping (the new) has been growing and more and more physical stores (the old) are closing. While this unfolds, however, additional benefits of bricks and mortar locations continue to emerge. Based upon my 25+ years researching business success and failure patterns, companies that do a good job integrating the old with the new position themselves for greater success. In retailing, this will often mean paying more attention to physical stores.

Yet, sometimes, the implications of integrating the new with the old won’t be completely obvious a priori. This might be the case, for example, when trying to reduce costs by cutting out the old to put far greater emphasis on the new. In these situations, companies can easily become enamored with the potential for financial benefit from cost cutting. Sometimes, however, the benefits of such cost cutting can be obliterated by how the old actually contributes to the success of the new. That’s why it’s important to proceed with caution rather than automatically justifying the shuttering of the old merely as a cost cutting measure. And, the recent uptick in retail store closings draws attention to this issue.

More specifically, on the front page of the April 22-23, 2017 Wall Street Journal, there were several charts illustrating the surge in store closings. The caption under the charts stated that “U.S. retailers are closing stores at a record pace this year”. Elaborating on this topic, an article titled “Store Closings Accelerate” by Suzanne Kapner appeared in another section of that day’s Wall Street Journal.

Nonetheless, the value of bricks and mortar should not be ignored. Despite so many more store closings, additional benefits from integrating bricks and mortar with online continue to emerge. An excellent example of this is comes from Kohl’s.

Like many retailers today, Kohl’s is not immune to the rough times impacting the industry. As online shopping is viewed as the area with growth potential, many players in retail have been shuttering bricks and mortar stores to cut costs and improve their financial performance. Kohl’s has also tried closing stores, but Kohl’s did it as an experiment. According to the March 21, 2017 online Fortune article “Why Kohl’s CEO Thinks Having More Stores is Better” by Phil Wahba, Kohl’s store closings were “a test it conducted last year, when the chain, which never had to pare its fleet, eliminated 19 stores to understand the impact on sales.”

The Fortune article explains that Kohl’s looked at what happened to its online traffic in areas where the chain no longer had a nearby bricks and mortar location. Kohl’s found that its online business declined in areas where it closed its bricks and mortar stores. According to the article, “Stores support ecommerce, offer suppliers an exceedingly wide distribution, and keep the retailer top of mind.” So, rather than close more stores, Kohl’s plans to keep them open, but to cut costs by reducing store size.

As I see it, Kohl’s approach recognizes the importance of integrating the old with the new. And, in some ways, Kohl’s situation parallels what Penney’s found regarding integrating the old medium of paper based promotions with its newer online business. Penny’s had eliminated its paper catalog, making way for the presumably high growth potential in online sales. But, Penney’s soon discovered that paper promotions increase online sales, so the company brought back a smaller version of its paper catalog. Although recognizing the value of integrating the old with the new is a plus for Penney’s, the company still faces challenges from its foray into excess change a while ago. Kohl’s, on the other hand, is in a much better position to successfully integrate the old and the new.

Nonetheless, both Penney’s situation with paper and Kohl’s with not closing stores illustrate how the older way of doing things can have a key role in the marketplace as long as it still offers benefits. And, for retailers, integrating the old bricks and mortar or paper with the new ecommerce is the way to tap these benefits and pave the way to do well by letting the old support the new.

Furthermore, based on my 25+ years researching business success and failure patterns, Kohl’s should be commended for recognizing the advantages it has from the wide distribution its stores can offer its suppliers. Building on strengths is how companies succeed. And, unlike many other retailers, Kohl’s is nurturing its strengths by paying attention to the value of its physical stores. In fact, based upon the title of that Fortune article—“Why Kohl’s CEO Thinks More Stores Are Better”—the CEO of Kohl’s deserves praise for understanding important points about what it takes to move the company forward. Of course, this does not mean overbuilding stores. But, it does underscore the tremendous value of leveraging what you have.

In conclusion, companies should not be too quick to eliminate the old for cost cutting reasons. Instead, they should seriously consider whether and how the old plays a crucial role that contributes to the growth of the new. Then, strive for an appropriate mix of the old and the new.

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