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Board Disruption Sends Kohl's Shares Soaring. What Should Investors Know?


Feb 23, 2021 by Maurie Backman
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Though Kohl's (NYSE: KSS) has fared pretty well in the course of the coronavirus pandemic, its performance was surprisingly sluggish leading up to it. In the fiscal year that ended in early 2020 (before the coronavirus outbreak began), the company's net sales landed at $18.9 billion, which is roughly where they were eight years earlier -- not exactly progress.

It's for this and other reasons that a group of Kohl’s shareholders is pushing back in the face of lackluster performance. The group, which comprises Macellum Advisors, Ancora Holdings, Legion Partners Asset Management, and 4010 Capital, has nominated nine directors for a place on the Kohl's 12-person board of directors. The firms advocating for change insist that too few of Kohl's existing directors have the retail experience needed to move Kohl's in a more profitable direction.

Following the announcement, Kohl's shares rose 9% on February 22. But while a new board could spell good news for Kohl's, it could also be good news for real estate investors.

Positive changes on the horizon?

The shareholders attempting to change things up for Kohl's are displeased with the retailer's advertising budget and digital sales strategy, among other things. But the reality is that Kohl's could also use some new product lines to become an increasingly relevant shopping destination for consumers.

In recent years, Kohl's has fared better than its mall-based department store competition. But off-mall rivals like Target (NYSE: TGT) have continuously outperformed Kohl's.

Of course, when we compare Kohl's to Target, it's easy to see why. The latter is truly a one-stop shop for consumers, and in the wake of the pandemic, that's helped Target boost its revenue. Kohl's, meanwhile, is not a destination for all household essentials, so it has a clear disadvantage.

But that doesn't mean Kohl's doesn't have staying power. In fact, if it does a good job of phasing out underperforming store brands and entering into strategic partnerships, the retailer -- which already has a loyal fan base -- could truly go the distance in the coming years, especially under a savvy enough management team.

Recently, Kohl's entered into a partnership with makeup and beauty giant Sephora, who ditched J.C. Penney (OTC: JCPNQ) as part of the deal. And Kohl's has also teamed up with Amazon (NASDAQ: AMZN) to handle in-store returns for the online giant -- a move that could drive more customers to stores and boost sales.

All told, there's reason to be hopeful about Kohl's, especially with a new board of directors at its helm. And if Kohl's continues to thrive, that'll be good news for real estate investors, since it currently serves as a shopping center mainstay.

In the past year, dozens of retailers have filed for bankruptcy or forged forward with store closures in the wake of the pandemic, and the fear is that malls and shopping centers will soon find themselves starved for tenants. If a new Kohl's board does a good job of boosting sales and revenue, Kohl's could continue to serve as a shopping center anchor tenant for many years to come.

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