• Kohl's holiday season will reflect the retailer's latest effort to refresh its stores and lift its stock.
• The company is adding more pet merchandise, home decor, and impulse and gifting items to drive sales.
• It marks the first holiday season overseen by Kohl's new CEO, Tom Kingsbury, and chief merchant Nick Jones.

As shoppers head to Kohl's stores this holiday season, they will see gift ideas, Christmas ornaments and a potential glimpse of the retailer's future.

It marks the first peak shopping season overseen by Kohl's new CEO, Tom Kingsbury. The retail veteran, who previously led off-price chain Burlington Stores, officially stepped into the role early this year after serving on an interim basis. He succeeded Michelle Gass, who departed to become CEO-elect of Levi Strauss.

Kohl's kicked off the latest effort to refresh its brand as it navigates a confusing economic backdrop, and after it faced scrutiny from activist investors and failed to secure a deal to sell to the Franchise Group, owner of The Vitamin Shoppe. Its sales and stock price have lagged.

As it tries to turn around its fortunes, Kohl's has focused on sharpening the look of its stores and the brands and merchandise it carries, Kingsbury said. By leaning into popular brands and categories, he said the company could return to sales growth in 2024.

"Home decor, pet, gifting, impulse, all the things that we've been talking about will really help us get there," he told investors on an August earnings call.

Net sales for Kohl's most recent full fiscal year, which ended in January, totaled $17.2 billion — a nearly 9% drop from the fiscal year that ended in early 2020, shortly before the Covid pandemic shook up spending patterns.

Shares of the company are down about 17% this year, underperforming the 12% gains of the S&P 500 and the roughly flat performance of the retail ETF, the XRT.

Kohl's has forecast that full-year sales will decline by 2% to 4%, including the approximately 1% impact of a fiscal year that's one week shorter.

Along with its own strategy shift, Kohl's is gearing up for a season when consumers have sent conflicting messages about how much they're willing to spend and what they think is worth buying, even as some tighten their belts.

At a store tour in Ramsey, New Jersey, this week, even some timely items like Christmas decor and fall sweaters were 40% or 50% off — an indicator that the retailer is trying to move merchandise and appeal to more budget-minded customers.

"We know they're stretched," Chief Marketing Officer Christie Raymond said. She said the company is watching factors like rising credit card debt, dwindling savings and the return of pandemic-paused student loan payments.

But she added shoppers are still spending — sometimes starting early to hunt for the best deals or perfect items that seem worth the money.

Kohl's set its holiday merchandise at stores in the first week of October, weeks earlier than the pre-pandemic holiday season in 2019 and even earlier than the past couple of years, when Covid threw off the typical shopping cadence, Raymond said.

Here are major strategies that Kohl's is leaning into this holiday season and beyond:

Betting on beauty

From perfume to mascara, beauty is one of rare categories where shoppers have continued to splurge — even as they deal with pricier groceries, higher interest rates and bigger utility bills.

Kohl's has leaned into that by adding more Sephora shops to its stores. This holiday season, it will have about 900 of the shops — meaning they're now in the vast majority of its more than 1,100 stores across the country. It will carry some exclusive items, too, like gift sets only sold at Kohl's.

It'll be a bigger part of this holiday season. A year ago, roughly half of Kohl's stores had a Sephora shop. Two holiday seasons ago, which marked its first with the beauty shops, they were in 200 locations.

Sephora at Kohl's has been one of the company's brightest spots, especially during a time when customers have become more reluctant to spring for discretionary items. Total beauty sales for the company rose nearly 90% year over year as of July 29, the end of the most recent fiscal quarter.

Raymond said Sephora has drawn younger, more diverse shoppers to stores, but also been popular with Kohl's longtime customers.

In the next few years, Kohl's plans to open smaller versions of the shops in the rest of its stores. And it's looking for ways to get those new customers it's reeled in to browse and buy merchandise from other parts of the store, said Nick Jones, the company's new chief merchandising and digital officer. He joined Kohl's earlier this year, after working for British retailers, including Marks & Spencer and ASDA/Walmart UK.

Leaning into impulse buys

As shoppers rush around during the peak shopping season, Kohl's wants to tempt them to grab one — or ideally, two or three — more things.

Kohl's has made more room in the cash register area for impulse items and stocking stuffers, such as candies, small toys and stuffed animals. It also has a dedicated display of grab-and-go beauty items from Sephora, such as face masks or lipsticks.

It's also sprinkled gift ideas throughout its stores, such as aisles where customers may spot a Barbie dream house for their child or a high-tech toaster oven for their sister-in-law.

Jones said Kohl's wants to simplify the season for busy families. That means not only having a wide variety of merchandise, but also guiding them toward good deals with signs that advertise discounts and displays that include creative gift ideas, such as a colorful sweater, children's books or a collection of hot sauces.

It also cleared away space in the front of stores by taking out some cash registers, so that customers see trend-driven or seasonal items when they walk in.

A haul for the home

Home goods may have been a hot pandemic category, but Kohl's is betting it's a big business opportunity now.

During the holiday season, shoppers may notice an expanded mix of items that could spruce up their homes, or help as they host friends or look for something to go under the Christmas tree. For example, stores are carrying more glassware and items for party hosts, such as copper mugs, champagne flutes and cocktail shakers.

Kohl's already sold bedding, small appliances, picture frames and more. Yet on the company's earnings call in August, Kingsbury spoke about home goods as one of the company's biggest growth areas, saying it's working with new vendors and adding lighting, wall art and more.

The demise of bankrupt Bed Bath & Beyond has created room for retailers, including Kohl's, to grab more market share in the space. The economic backdrop could be a factor, too.

As some Americans decide against moving because of high interest rates, they may want to buy decorations to freshen up their current homes, Jones said.

And something for Fido, too

Add Kohl's to the list of retailers trying to cash in on the pandemic pet boom.

The retailer is dedicating more square footage to dog beds, cat towers and some pet items that get replenished more frequently, such as treats and shampoo.

Kohl's decided to expand across the chain after a successful test at 50 stores last fall, Kingsbury said on the earnings call in August. The company wouldn't quantify the number of stores with more pet merchandise, but Jones said the Ramsey store, which reflects its holiday look, has twice the amount of items in the category that it did a year ago.

Other retailers have also zeroed in on the category, which has historically been more resilient during recessions and economic downturns. Lowe's struck a deal with Petco Health & Wellness to open mini shops in a growing number of its stores and Walmart recently announced the opening of its first pet health center with vet care.

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