55-Standard Leader Expands in Tough Market and Uses Price

Kohl’s Corporation is opening forty-six stores soon as part of a plan to gain market share as the busy holiday season starts in the U.S. Today, Kohl’s has something less than 1,000 stores open in the U.S. The company expects sales at stores open for a year or more to be down 2 to 4% during this year’s holiday season compared to last, so they are opening stores to make up for some of the sales fall-off.

But that’s not all they are doing. The company is a middle market chain competing with the likes of Penney’s and Macys. The company plans to renovate sixty existing locations in 2009, twice the number it will renovate in 2008. Probably boldest of all is their plan to use low prices to gain share.

The company expects to advertise its lower prices in its holiday marketing early in the season to be sure that customers know their spending goes further at Kohl’s. This price thrust will work only if Penney’s and Macys do not follow Kohl’s lead. (See the Symptom & Implication, “Large competitors are maintaining price levels as smaller competitors discount”, on StrategyStreet.com.) If they don’t, they are in a Leader’s Trap. A Leader’s Trap occurs when an established industry competitor maintains a price umbrella and cedes share to a discounting competitor in the mistaken belief that customers will stay loyal to the established competitor by paying a premium for its product. Over time, the company in the Leader’s Trap not only loses share, but also sees prices fall to a level near the price established by the discounting competitor. (See the Perspective, “The Leader’s Trap”, on StrategyStreet.com.)

Kohl’s is almost certain to gain market share at the expense of weaker competitors, such as Mervyn’s and some of the regional department store chains, who do not have the financial where-with-all to stay with them. But this market share is available to Penney’s and Macys, as well. If these latter two Standard Leaders don’t follow, they will be making a mistake.

Posted 11/3/08

Update:

Kohl’s continues to operate profitably in the United States. In 2021 it had 1162 stores. In 2020 Macy’s operated 572 Macy’s branded stores and also operated 162 Bluemercury stores.

JCPenney filed for bankruptcy in 2020. It was acquired by Simon Property group and Brookfield Asset Management, two of the country’s largest mall operators and also landlords of many JCPenney stores.

Mervyns went into chapter 7 bankruptcy in 2009 and was liquidated.

A company attempting to use a low price to gain share must assess the likelihood that competition will follow its price reduction. If competition does follow, the low price becomes meaningless and the industry simply loses margin. Whether a competitor will follow or not depends on its knowledge, capacity and will. See HERE for more.

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