Kohl's under fire in MA

Brent Felgner, November 11, 2002

Boston — Representatives of the Massachusetts attorney general's office have scheduled talks with executives of Kohl's Department Stores in an effort to resolve allegations that the retailer's pricing policies are "illusory" and violate local consumer laws, according to state officials.

The discussions were slated on the heels of a non-compliance letter sent by Diane Lawton, managing attorney of the Consumer Protection and Antitrust Division of the attorney general's office, to Richard Schepp, Kohl's executive vp and general counsel.

Schepp did not return several calls seeking comment.

Plans for the meetings were confirmed by Sarah Nathan, a spokeswoman for the attorney general. She declined to disclose precisely when the meetings were scheduled for and who would be in attendance.

The allegations center on Kohl's aggressive sale pricing and promotions — areas at the core of its market strategy and business model.

"For example, Kohl's appears to offer some items on 'sale' at most or even virtually all times, which means that these items never have a 'regular' price to which Kohl's can compare," the Oct. 16 letter asserted.

The correspondence also raised specific statutory issues concerning the period of time required for a regular price to be established or, in the alternative, the requirements to establish a manufacturer's suggested retail price.

"Comparisons which include reference to illusory 'regular prices,' percentage discounts that do not reveal the original prices, and sales tags that do nothing to clarify the item price, so that a consumer can only determine the price by taking the item to the register, do a disservice both to the consumer and to the seller," the letter stated.

The letter was sent following — and appears to be at least partially in response to — a Boston Globe article that detailed the results of a four-month pricing survey at the chain's Medford, MA, store, apparently after a consumer advocate — an attorney formerly with the Consumer Protection and Antitrust Division — brought the matter to the newspaper's attention.

Kohl's entered Massachusetts more than two years ago, during its foray into the Northeast, and currently operates 13 stores here.

The retailer has run afoul of state consumer regulations regarding its pricing at least twice before, both times in Kansas — originally in 2000 and earlier this year. Without admitting guilt, Kohl's signed a consent order and paid a total of $500,000 in fines in the Kansas matters.

An HTT survey of state attorneys general in the 10 states where Kohl's has its largest store base yielded no additional complaints, orders or pending actions against the retailer.

Kohl's pricing strategy — positioning as a budget department store, not a discounter, and then promoting heavily — is at the center of a business model that has enabled it to obtain brands that traditional mass merchants generally cannot source by aboveboard means. The company has stated repeatedly that it intends to expand its brand offerings further, while continuing to offer sharply-priced values to its customers.

Were it forced to abandon that strategy, its entire approach to the market could fall into question.

That point seems to have been driven home in a report from consulting firm RetailForward. The Columbus, OH-based firm recently authored a report entitled, "Kohl's: Why it works and what you can learn."

"Perhaps the most significant factor in Kohl's success — and something that sets it apart from many of its competitors — is that the concept itself is clear, consistent and easily understood by consumers. The company appeals to its target customer segment through a combination of three key factors: (1) quality national brand merchandise, (2) prices that provide exceptional value to its customers and (3) convenient neighborhood locations," the report stated.

"The company stresses value through constant promotions, reportedly selling more than two-thirds of its merchandise on promotion. One- or two-day point-of-sale markdowns are used to drive customer traffic," the study said.

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