Despite analysts expecting only tepid sales growth for Kohl's (KSS 1.36%) for the Christmas season, the retailer wasn't even able to make it over that low hurdle; comparable-store sales fell for the November-to-December holiday shopping period.
Although CEO Michele Gass assured investors the department store's vaunted partnership with Amazon.com (AMZN -0.48%) would drive sales higher as it was rolled out nationally last year, a disastrous third-quarter earnings report and now a disappointing Christmas update makes it clear the program is not working.
While there is some evidence customers are using the department store chain as a drop-off point to return their Amazon packages, Kohl's really just has one more chance to show the partnership can generate sales before investors conclude the program is a failure.
The mall is a ghost town
The retail apocalypse is having a devastating impact on mall-based retailers -- J.C. Penney (JCPN.Q) and Macy's (M 4.54%) also reported falling comps, though the former's were much worse than the latter's, and analysts see Macy's as having a chance to make a U-turn.
Kohl's comps were actually the best of the trio, but it being the retailer least attached to the shopping mall could explain why its same-store sales were down only 0.2% compared to a 0.6% drop at Macy's and the severe 7.5% plunge at J.C. Penney. Still, analysts had only set the bar for Kohl's at a 0.4% increase, so the decline is substantial. It also forced the retailer to forecast that full-year earnings would come in near the low end of its previously issued guidance of $4.75 to $4.95 per share.
Management blamed the shortfall on weakness in its women's apparel department, even though it had a "solid performance" in footwear and men's, but with women's accounting for nearly 30% of total annual sales, any lapse will be magnified.
Many happy returns
Yet it was this sort of deficiency that Amazon was supposed to help alleviate. Customers who buy something on Amazon and want to return it initiate the return on Amazon's website and are given a range of options on how they want to return the item. One of them is to drop it off at a Kohl's store, with the customer not needing to box it up or even have the original packaging. They just bring the item in, and the retailer processes the return free of charge.
Gass was amped about the partnership's potential, telling investors last quarter that with the returns program operating in all stores for the holidays, Kohl's was setting up special merchandising areas around the returns counter to capture new customers. She was certain it would "drive additional traffic into our stores."
While geolocation surveys suggest more customers have come to Kohl's stores following the program's rollout, the sales results make it obvious they've purchased very little if anything.
A Hail Mary pass
Kohl's has one more shot at proving this program can work. UPS calls Jan. 2 National Returns Day and said it expected 1.6 million transactions to be conducted that day, a 26% increase from last year.
At the same time, Amazon said this was its most successful Christmas ever, with tens of billions of products sold worldwide and the number of items shipped via Prime one-day or same-day delivery quadrupling over last year. It's a good bet a large number of those items will be returned. If Kohl's has any chance of showing the partnership can work, it needs consumers to make many of those returns through its stores and then buy something while they're there.
It always seemed dubious that someone buying on Amazon.com would decide to now shop at Kohl's. Unfortunately, the lack of sales during the holidays suggests those fears were well founded. If the retailer can't generate more sales this month when there should be a large influx of people returning packages, there seems to be little hope it will ever amount to anything, and Kohl's is facing a much more difficult future.