What Is The Right Size of a Kohl's Store?

Kohl's does not plan to close many of its ~1,100 stores -- but could it elect to downsize stores and sublease portions of the buildings to other users?

On its Q1 2025 earnings call Kohl’s KSS 0.00%↑, CFO Jill Timm was asked by an analyst what the “right” number of stores was for the retailer?

And, more specifically, was it significantly less than the ~1,100 stores that Kohl's currently operates?

After all, Kohl’s had already closed 27 stores during the quarter.

Timm, however, responded that the store base was “incredibly healthy” and that most stores are profitable on a “4 wall” basis prior to the allocation of corporate overhead.

She referred to the closing of 27 stores in Q1 2025 as "hygiene" and something that Kohl’s “should be doing at all time" to cull underperforming locations.

Particularly as the retailer reviews its 80 or so leases that expire each year.

But Timm did not shut the door on retooling the Kohl’s store base.

Not necessarily through additional closures but rather the downsizing of certain larger stores.

And, perhaps, by bringing in tenants to backfill the downsized space.

Timm noted that the Company had reached some conclusions about its preferred store size.

While more than 70% of Kohl’s stores are in its 88,000 square foot prototype, some stores are as small as 35,000 square feet and the Company also operates in 55,000 and even 64,000 square foot suites.

Timm commented that the retailer’s 35,000 square foot stores were too small.

She said the Kohl’s was “focusing and centering ourselves on the retailer’s 55,000 square foot” prototype and hinted that it could result in the Company downsizing some of its 88,000 square foot stores to improve store productivity.

So is a downsizing of Kohl’s store base even feasible?

Ironically, Kohl’s came to a similar conclusion under a previous management team.

Kohl’s even downsized portions of its own stores in certain markets.

In 2018 Kohl’s formed partnerships with ALDI and Planet Fitness which allowed the companies to take space left over by the downsizing of a Kohl’s store.

The first such Kohl’s-ALDI combo store in Waukesha, WI opened in 2019.

Close to two dozen other Kohl’s stores have also been downsized and paired with either ALDI or Planet Fitness.

Notably, Kohl’s entered into a partnership in 2017 with Amazon AMZN 0.00%↑ to accept returns in many of its stores.

While the Kohl's is now reportedly testing the end of its Amazon return partnership at a few of its stores, the two companies have also previously collaborated on sharing real estate.

In 2022, Amazon Fresh opened a new 37,000 square foot grocery store in part of a downsized Kohl's store in La Verne, CA.

Even some of the recently vacated Kohl’s stores are expected to be demised for multiple tenants.

For instance, the German grocer Lidl has purportedly leased the ~100,000 square foot recently vacated Kohl’s building in Herndon, VA.

Lidl does not intend to occupy the entire store but instead plans to divide the building into three separate units.

Lidl then plans to operate a grocery store in the middle ~30,000 square foot suite and lease the two endcap spaces to other tenants.

It is not a surprise that the Kohl's real estate is attractive to other users.

After all, more than 80% of Kohl's stores are in outdoor strip centers alongside other similar retailers — and where expanding tenants want to locate.

Additionally, the Kohl's buildings are modern and functionally relevant to retailers.

And there are few Big Box shopping centers under development in most markets.

So one thing seems pretty clear in the debate about Kohl's real estate:

The right size of a Kohl's store (or the right number of stores!) may be an open question...

But demand for its real estate — whether from Kohl’s or others — is quite strong!