March 3, 2014, 5:00 PM

The year online was big but not trouble-free for Kohl’s

Web sales grew 19% in 2013, but missed holiday shipping deadlines have Kohl’s taking remedial action and scaling back expectations. To improve peak-season deliveries Kohl’s will use more stores this year to fulfill online orders.

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It was another year of big growth online for Kohl’s Corp., but 2013 wasn’t entirely problem-free for e-commerce operations, CEO Kevin Mansell and other company executives told Wall Street analysts last week on the Kohl’s year-end earnings call.

Kohl’s disappointed many online shoppers in the two weeks prior to Christmas with late delivery due to large volumes, bad weather and the capacity of big shipping companies such as UPS and FedEx to handle substantially larger holiday package delivery quantities at peak times, Kohl’s says. As a result Kohl’s, the industry and web shoppers may need to scale back expectations on just how many holiday orders can be picked, packed and shipped during the final days before Christmas.

“We’re going to have to ship things more expensively to meet the peak demand and the FedExes and UPSes of the world only have a fixed capacity,” chief financial officer Wesley McDonald told analysts. The industry needs to be more realistic in terms of late holiday shipping guarantees, he said. “It’s going to move back, I think, in terms of what they’re willing to promise all of us--as shippers--that they can deliver in time for Christmas.”

Kohl’s didn’t break out how many online shoppers received holiday package deliveries late. But shoppers took to social media in droves to complain about missed deadlines.

To improve peak-season deliveries Kohl’s, No. 26 in the 2013 Internet Retailer Top 500, will use more stores this year to fulfill online orders, as many as 500 of its network of 1,158 stores. Kohl’s, which already operates four e-commerce distribution centers nationwide, also may open more fulfillment hubs to accommodate more holiday shipping. “We’re taking our ship-from-store number of stores up to at least 500 for this year, that will help significantly,” McDonald said. “We’re also looking at another bulk distribution center, whether we run it temporarily or we use a third-party service provider to do it.” Currently about 200 stores fulfill online orders. A final step Kohl’s is taking is expediting training exercises to simulate high-volume shipping periods, to see what works and doesn’t work, and to make specific improvements. “We’re also really working on practicing ‘peak’ every day in the off season,” McDonald told analysts.

But even with new and better procedures Kohl’s thinks the shipping industry has reached its delivery capacity and that will force merchants to rethink what they promise shoppers. “I think we are all going to have to, in retail, rethink the cutoff dates, because there’s only so much capacity in the pipeline that FedEx and UPS can provide,” McDonald said. “We all have to be—in a business—more realistic as to what we can get delivered those last few days before Christmas.”

Kohl’s will invest more this year in e-commerce, a channel whose sales growth continues to outpace that of stores by a wide margin. “Our e-commerce sales have now almost doubled since 2011 and have increased at a compounded annual growth rate of almost 40% over the last five years,” CEO Kevin Mansell told analysts.

In 2014 Kohl’s also will expand mobile commerce, Mansell said. “Obviously mobile is driving visits and it’s important that we have best-in-class mobile experience,” he told analysts. “There’s a whole bunch of mobile-enabled customer experiences that we plan to begin to roll out. They include things like the next chapter of loyalty, an effort to create a new tablet-centric site, enhancing our mobile wallet experience, and then developing and launching a whole series of in-store experiences around location-based marketing, personalized offers and more product information.”

For the year ended Feb. 1, Kohl’s reported:

  • E-commerce sales increased 18.9% to $1.70 billion from $1.43 billion in 2012.
  • Total sales decreased 1.2% to $19.03 billion from $19.27 billion in 2012.
  • Comparable-store sales decreased 1.3%.
  • Net income decreased 9.8% to $889 million from $986 million in 2012.
  • The web accounted for 8.9% of all sales compared with 7.4% in 2012.

For the fourth quarter, the company didn’t disclose e-commerce sales but did report:

  • Total sales decreased 3.9% to $6.09 billion from $6.34 billion in the fourth quarter of 2012.
  • Comparable-store sales decreased 1.3%.
  • Net income decreased 11.6% to $334 million from $378 million in the fourth quarter of 2012.
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