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Kohl’s vs. JCPenney: A Store-Opening Contest to Capture the Middle Market

On Oct. 5, Kohl’s Corp. opened 65 new stores. The following day, J.C. Penney Co. opened 20 new locations of its own. In both cases, the moves represented company records for the largest one-day rollout. And it underscored the fact that the two chains are waging a pitched battle to control the mid-priced department store segment.

Both retailers are also redesigning stores with an emphasis on fashion displays, ease of navigation and more customer service. Retail industry analysts say that the fight between the two chains is about luring back fashion conscious consumers from boutique specialty stores.

Given the state of the department-store business, neither chain can rely on growth in same-store sales—expansion is essential, says Love Goel, chairman and CEO of Minneapolis-based retail investment firm Growth Ventures Group and former COO of Federated Department Stores, Inc. “The department store business is dying and what you have to do in a dying business is get scale to be profitable,” he says. “They cannot stand still because they will die.”

By 2010, Kohl’s plans to increase its store count to 1,200 from 817 and reach $24 billion in sales, up from a projected $14.2 billion this year. The October openings included locations in Boston, Tampa, Dayton, Minneapolis, Las Vegas and Los Angeles. JCPenney, on the other hand, expects to add about 50 stores a year through 2009 to reach its target of 1,191. The store will have about $19.1 billion in sales this year.

The expansion plans seem to sit well with investors. Shares in both companies chalked up 52-week highs last week: Kohl’s hit $70.47 on Oct. 12 and JCPenney reached $73.30 on Oct. 13.

Morningstar analyst Kimberly Picciola says Kohl’s has an advantage over JCPenney, because Kohl’s has been in expansion mode for longer and has a greater track record in operating standalone stores—a format JCPenney is still working to master.

Going forward, 90 percent of JCPenney’s new stores will be those in the 100,000-square-foot, single-level, off-mall format. Kohl’s, meanwhile, is looking for more urban locations.

Both chains are also trying to make store designs trendier. Kohl’s new design features glass entrances with fashion displays highlighting seasonal merchandise. The retailer also opened a New York design office last week that will track the latest trends from the runway.

In August, Kohl’s also signed an exclusive licensing agreement with designer Vera Wang for a line of apparel and lifestyle products. This month, JCPenney entered a similar venture with Liz Claiborne.

“Kohl’s certainly hopes that more emphasis on fashion will bring in younger customers, as well as those customers who buy their apparel at JCPenney and maybe even at Macy’s,” says Kurt Barnard, president of Nutley, N.J.-based Barnard Retail Forecasting. “It will be a very interesting face-off.”

Neither Kohl’s nor JCPenney returned calls for comment.

Goel believes that despite the new stores and the fashion deals, neither Kohl’s nor JCPenney is likely to win back the teenagers and young adults who patronize discount outlets and specialty apparel stores like American Eagle. “One of the reasons department stores are dying is that young, fashionable women would not be caught dead in them,” he says. “The kid who grew up shopping at Abercrombie & Fitch will not go to the department store to buy the latest pair of jeans and I am not sure that putting a new coat of paint and improving the lighting will change that.”

Barnard also questions how much difference the new store formats and décor will make. “The only reason they are doing these things is because they don’t want to continue to look dowdy and tiresome,” Barnard says. “To have a beautiful-looking store is never wrong. But at the end of the day, the consumer goes to Kohl’s because of its products and its prices, not because it looks pretty.”

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