Kohl's ended 2022 with sales down 7% for the year. Here's how the new company leaders plan to turn things around for 2023.

Kohl's Corp. is entering 2023 with a new CEO and a plan to increase profits after struggling throughout most of 2022.

Kohl’s Corp.'s final quarter of 2022 showed a net sales decrease for the year of 7.1% to $17.2 billion, continuing a downward trend for the company, according to the quarterly and annual results released Wednesday.

Operating income for the year was $246 million compared with $1.7 billion the year before.

The new leaders of the Menomonee Falls-based retailer say they plan a new strategy to turn things around in 2023.

Kohl’s plans to invest $600 million to $650 million to expand its partnership with Sephora and continue to "refresh" its other stores.

Kohl’s CEO Tom Kingsbury told analysts Wednesday the company “has a solid foundation and a highly motivated team with a set of priorities to capitalize on what I see is a substantial opportunity to make a difference in the retail landscape.”

“During the past three months I have had the opportunity to assess our go-to-market strategies, our operational capabilities and processes, and our organizational structure,” Kingsbury said. “I’ve also visited a number of our stores across the country and engaged with many of our brand partners.”

“Candidly, I know we can do better,” Kingsbury said.

In January Kohl’s laid off nearly 60 people at its headquarters in Menomonee Falls. Kingsbury said the purpose was to drive “efficiency in our operations.”

“This included consolidating the number of general merchandise managers to four from seven, a structure that we had prior to the pandemic, as well as transitioning planning and allocation to report directly to me,” Kingsbury said.

The changes being made to boost the company “will take some time, it won’t happen overnight,” Kingsbury said.

The company hopes to improve its finances by enhancing the customer experience, accelerating and simplifying our value strategies, managing inventory and expenses with discipline, and strengthening the balance sheet.

“Our partnership with Sephora is an excellent example of how we are enhancing the customer experience. Nearly 8 million of our customers purchased beauty products at Sephora at Kohl’s last year,” Kingsbury said, adding beauty sales increased 90% in the fourth quarter.

Kingsbury said he has met with Sephora leadership and both companies “are pleased with the partnership.”

“We both see immense opportunities to continue to drive sales and profitability in the future,” Kingsbury said.

Adding 250 Sephora shops this summer will bring the total to more than 850 Sephora shops at Kohl’s stores.

“In addition we’re opening 50 smaller format Sephora shops by the end of this year with a plan to roll out to the remainder of the chain by 2025.”

Kingsbury, who has yet to answer any questions from media since December when he was named interim CEO. He became the company's permanent CEO in early February.

Improving home decor, gifting and inventory

In-store purchases represented around 70% of sales for Kohl’s.

“Frankly, though, we have to do a better job of driving greater in-store productivity and I’m confident that we can,” Kingsbury said. “Looking ahead we are rethinking on how we merchandise stores to deliver a better experience for customers to drive greater frequency of business and capture more share of their wallet.”

For example, Kinsgsbury said, stores moved their gifting assortment to the front of the stores in early December to capitalize on peak holiday shopping traffic.

“This proved highly effective, resulting in sell throughs significantly higher than the prior year,” Kingsbury said.

Kingsbury said the company bought too much inventory last year and needs to improve its discipline.

“We got out of control in 2022,” Kingsbury said. “We did a good job in 2021, but in 2022 we had a big spike in inventory. So we need to improve those disciplines. We need to be more agile in terms of being open to buy and spend every single quarter so that we can chase the business. It’s better to understand what the customer wants and go after it than to buy it all upfront and hope it sells.”

Kingsbury told analysts that inventory operations would report directly to him "because of the importance that inventory control is in terms of everything we want to accomplish in 2023 and beyond."

Discounts and pricing

Kohl’s is well-known for its discounts, Kohl’s Cash and other efforts but its “promotional strategy, at times, can be a disadvantage for Kohl’s when compared to our competitors' price-focused strategies.”

“We have made progress during the past couple of years in our pricing and promotional optimization efforts,” Kingsbury said. “We will build on this progress in 2023, accelerating our efforts to reduce our reliance on general promotions.”

Kingsbury said the company will test everyday-value pricing with a small percentage of products and, if successful, grow it in the following years.

New COO at Kohl's

On Tuesday, Kohl’s announced Dave Alves will be the new president and chief operating officer.

“I’ve long admired the Kohl’s brand and business model throughout my career and I am excited to join the team,” Alves said in a statement. “Retail is a dynamic and fast-paced industry that must constantly evolve with consumer preferences and behaviors, and I think Kohl’s does a great job staying true to its heritage while pushing the retail experience forward. I look forward to being part of the company’s bright future.”

Alves was president and chief retail officer for Florida-based Bealls Retail Group, overseeing all Bealls Stores, Bealls Outlet Stores, Burkes Outlet Stores, and Home Centric.

“We are thrilled to have Dave join our senior leadership team as we drive the business forward,” Kingsbury said in a statement. “Kohl’s is a tremendous company with a strong and loyal customer base, and Dave is joining us at a time when we are elevating our business and our offerings for the next generation of shoppers. His deep retail background in department stores and off-price, and his experience across U.S. and global markets will be a great addition to our team.”

This article originally appeared on Milwaukee Journal Sentinel: Kohl’s 4th quarter sales drop 7%. Executives promise new strategy for 2023.