Kohl's brings back Babies R Us to boost sales

WOODLAND PARK, NEW JERSEY — Kohl's is thinking small to increase its sales.

The retailer is opening Babies R Us stores in its existing stores nationwide starting this week and plans to have 200 by the end of September. The stores will offer a variety of baby products the company hasn't offered before, including shampoo, strollers and car seats. Previously, Kohl's sold only baby clothing.

With the move, the Wisconsin-based retailer aims to cater more to young families, whether they are decorating their homes, preparing for back-to-school or preparing for the arrival of a new member. Most of the retailer’s roughly 1,170 stores are in suburban shopping centers, just a short drive away for busy parents running errands or grocery shopping.

In addition to the baby category, Kohl's is also growing its assortment of home decor, gifts and impulse items. CEO Tom Kingsbury estimated in late May that those expanded categories, including Babies R Us, are “a $2 billion-plus sales opportunity” in the coming years.

But American demographics are not in Kohl's favor. Last year, births in the United States totaled 3.59 million, according to provisional data from the U.S. National Center for Health Statistics. This is the lowest number of births in more than 40 years.

During a tour of New Jersey stores on Wednesday, merchandising director Nick Jones showed off the first Babies R Us store. Customers strolling through the store can see and touch many higher-priced items, such as strollers, cribs and high chairs, outside the cardboard box. The stores include many major baby brands, including Hatch, Frida, Graco and BabyBjorn.

In recent weeks, online shoppers have also seen Babies R Us on Kohl's website. Its website has twice as many products as the roughly 800 to 1,000 items available at most stores, the company said. Kohl's will also launch a baby registry in the fall.

Each store will vary in size, but will be located next to the baby and children's clothing currently available in all stores. Jones said there will also be more products on the way for expecting families, including baby apparel from Nike. Maternity apparel from Motherhood, a direct-to-consumer brand, will also be launched and will be exclusive to Kohl's stores.

The retailer is opening Babies R Us stores at a time when it needs growth drivers. Kohl's net sales In the last fiscal year, which ended in early February, total revenue amounted to $16.6 billion, down nearly 14% from five years ago.

Kohl's hopes the current Full-year net sales are expected to decline 2% to 4%. The company posted an unexpected net loss of $27 million for the fiscal first quarter and lowered its full-year outlook in late May.

Kohl's shares have fallen 24% this year, lagging the S&P 500's gains of nearly 16% over the same period.

Like other retailers, Kohl's has had to deal with shoppers putting off discretionary purchases while spending more on everyday expenses like food and housing. However, Kohl's challenges go beyond that, according to Dana Telsey, managing director and director of research at Telsey Advisory Group, said the company needs to improve its offering to capture the attention of new and existing customers.

“There has been a lot of competition from others,” he said. “A brand has to stand for something and have significance.”

Kohl's is betting on the baby category as innovative products and high-end items such as stylish strollers drive spending.

Sales of baby products totaled $7.5 billion during the 12-month period ending in May, up 4% from the same period in 2020, according to Circana, a market research firm that tracks the sector. It includes a wide range of items such as car seats, strollers, bottles, bassinets, high chairs, cribs and breastfeeding systems.

Stephen Hinz, an industry consultant at Circana who tracks baby product sales, said customers' willingness to pay for premium baby items has driven spending.

He noted that the U.S. Census Bureau has The average age of American women giving birth was found to be 30.

“At that point, people are at a very different stage of life,” she said. “They're older, more established in their careers, more likely to be homeowners and have more disposable income, and these have a greater influence on the things they can choose to bring into their homes.”

Hinz said the market has remained stable despite the lower birth rate, as parents opt for more sophisticated items such as natural wood cribs and car seats that rotate to make it easier to get the baby in and out. Families will stretch their budgets to support a child's health and safety even during tougher economic times, she said.

Plus, new parents have more retailers and brands to choose from and new ways to register for baby items. Big box chains Aim and Walmart They have expanded their baby departments. Macy's launched its own baby registry in late April. Universal registries, such as Zola and Babylist, have gained popularity by allowing customers to choose items on retailers' and brands' websites.

In an interview with CNBC in March, Kingsbury said there is market share at stake in this category. He referenced the bankruptcy and store closures of Bed Bath and Beyond, the parent company of Buy Buy Baby.

And, she said, customers who shop at Babies R Us will also buy items in other departments.

Kohl's is making a similar move to the one it did with Sephora beauty stores, which it is opening in all of its stores. On earnings calls, Kohl's leaders have said the stores are attracting younger, more diverse customers.

Jones said Kohl's will decide whether to open Babies R Us in additional stores after getting feedback from the first 200 stores.

With the relaunch of Babies R Us, Kohl's will test whether the brand is still relevant or has become outdated.

The Babies R Us and former parent Toys R Us brands are now owned by WHP Global, a brand management company based in New York City. The firm has bought and tried to rebuild other brands, including Bonobos, Rag & Bone and Isaac Mizrahi. Toys R Us closed its stores after filing for bankruptcy in 2017.

Kohl's and WHP Global, which announced the deal in March, have not disclosed financial terms of the agreement.

In addition to the Kohl's deal, WHP Global also struck a deal with Macy's, which has opened Toys R Us stores in many of its department stores.

Kohl's move is risky because tastes have changed since the brand's heyday in the 1980s and '90s, said Natalie Gordon, founder and CEO of Babylist.

She said many retailers have failed to offer a satisfying customer experience and that they have few opportunities to try products in person. She recalled her frustrations with retailers when she was preparing to have her first child about 13 years ago, which gave birth to the idea for Babylist.

“I felt infantilized by the brands that were there,” she said. “Things were pink and blue with little cartoon characters on them. And I'm a pregnant woman. It didn't really resonate with me at all.”

The latest iteration of Babies R Us at Kohl's features the brand's familiar font, but Kohl's and WHP gave the brand a more contemporary look, said Christie Raymond, Kohl's chief marketing officer.

“There is a lot of credibility,” he said, “but we needed to modernize.”

Stores are decorated with chic baby photos instead of cakes or cartoon mascots, like Toys R Us' Geoffrey the giraffe.

Kohl's will be using a marketing tool that didn't exist during the Babies R Us boom. It plans to partner with influencers who can spread the word about the stores on Instagram and TikTok.