Good morning. I’ve covered retail for more than 15 years now, so if there’s one thing I’m familiar with, it’s a once-beloved retailer trying for the umpteenth time to mount a turnaround. It can be done—see Walmart in the last decade and Target in the second half of the 2010s. But as I’ve been seeing at Kohl’s (No. 261 on the Fortune 500)—it’s extremely difficult.
Investors were practically giddy yesterday when Kohl’s surfaced some glimmers of good news in its second-quarter earnings call. The stock is up 21% over the last few days. Interim CEO Michael Bender, a Kohl’s director who took the reins in May after the previous CEO’s surprise ouster, laid out his plans to get “back to growth.” But there are still many reasons to be cautious—and three big reasons these types of turnarounds are so challenging.
Cost-cutting takes a toll: The cost cuts and tight inventory, which protect margins, is giving Kohl’s financial breathing room to take another stab at turning itself around. But some of the moves Kohl’s has made to protect profits can in fact hurt sales. Lower inventory helps margins by reducing how much merchandise gets discounted if it’s not catching on with shoppers but it can also mean lost sales and visually unappealing empty shelves. Leaner staffing means lower costs but can also mean messier stores, and long waits to check out that can frustrate a shopper and foment low morale among employees.