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Kohl's Chases High-End Consumers, Competitors Chase Tails

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Discounter finds ways to appeal to wealthy.

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Even as consumers are trading down, Kohl's (KSS) is trading up.

Bloomberg reports the discount retailer is trying to attract higher-end consumers with designer brands such as Vera Wang and Ralph Lauren (RL). Sales at Kohl's have suffered less than at primary competitors Macy's (M) and J.C. Penney (JCP), which have both seen revenues slump alongside weakened consumer spending.

The majority of Kohl's stores are located outside of malls, a factor some analysts say has helped contribute to stronger performance. Struggling consumers are less apt to make trips to shopping centers, where J.C. Penney stashes around 90% of its stores.

Kohl's executives point to the popularity of its chicer brands as evidence it's won acceptance from wealthier consumers. As the economy slows, even higher-income customers are making their way to discount stores like Wal-Mart (WMT) and Costco (COST). This new traffic is boosting sales and helping to make up for lost revenue from big box stores' traditional clientele.

A retail analyst cited by Bloomberg said consumers are drawn to familiar brands during tough economic times. Kohl's, which attributes at least part of its outperformance to a focus on name brands over its own private label, is capitalizing on this trend. It hawks Vera Wang dresses sometimes as low as $100 - a steep enough bargain to open the wallets of even the most cost-conscious shoppers.


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By comparison, Penney is focusing on in-house brands, which it can offer at a discount to well known labels. The company recently launched American Living, a home furnishing and clothing collection designed in conjunction with Ralph Lauren. While management projects annual sales to eventually surpass $1 billion, Deutsche Bank's Bill Draher isn't so sure. "American Living is not a brand," he said. "It is two words that mean nothing to the consumer."

As we noted previously
, J.C. Penney seems to be charging headlong into a business competitors are exiting via the halls of bankruptcy court. Kohl's, meanwhile, is banking on consumers with more cushion - those better positioned to absorb an economic slump.
Position in JCP

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