Kohl's Corporation (KSS) Earnings Call Transcript & Summary

Thanks so much, everybody. Hi, it's Oliver Chen. We're thrilled to be joined this morning by Kohl's CEO, Michelle Gass; and CFO, Jill Timm. Also note today's fireside presentation may contain forward-looking statements as Kohl's outlined in its 8-K filing yesterday. I'm excited about Kohl's solid liquidity position and store footprint, digital fulfillment innovation, advanced loyalty program and product and brand innovation is -- ahead as Kohl's makes strides, appealing to new generations of shoppers. Michelle Gass joined Kohl's in 2013 as Chief Customer Officer, and was named Chief Merchandising and Customer Officer in 2015. Ms. Gass was promoted to CEO elect in October 2017 and assumed the CEO role in May 2018, and she was an integral leader of the creation of Kohl's long-term strategic framework, the Greatness Agenda. Jill Timm is Kohl's Chief Financial Officer, responsible for Kohl's financial planning and analysis, Investor Relations, financial reporting, accounting operations, tax and treasury. Ms. Timm joined Kohl's in 1999 and has held a number of progressive leadership roles across several areas of finance, most recently having served as EVP of Finance. And prior to Kohl's, Ms. Timm was at Arthur Andersen. First, I wanted to open up the floor to opening remarks before we dive into fireside chat. So thank you so much, Michelle and Jill, for joining us.

Well, thank you, Oliver. It's great to be here this morning. And I hope this finds everybody healthy and safe at this moment. Obviously, right now, we are in such an extraordinary and difficult time period. Of late, clearly, there's been the issues of social unrest, and I think we're all really devastated by what's been happening around the country around this issue. And I will tell you, from a Kohl's standpoint, we absolutely do not tolerate any level of racism or discriminatory behaviors. We've had a diversity and inclusion strategy and team in place for some time, and we're going to use this opportunity as a catalyst to drive even greater change in our company and beyond. So I appreciate the opportunity to address that, Oliver, with you, and we've been very public about our stance, both to our associate base of 100,000 as well as publishing our point of view across many media channels. So that clearly has been something that's been near and dear to my heart and to our company's heart of late. That comes on top of the crisis that we've all been battling here for the last couple of months, and that is the issue of the virus, of COVID. And clearly, that has had a devastating impact to people's health and it's touched many people's lives, and it's obviously put a lot of pressure on the economy and on businesses. And from a Kohl's standpoint, it did put a lot of pressure on business. I mean we were in the category of nonessential. And as a result, our close were -- our stores were closed for about 7 weeks. And that happened beginning on March 20, and then in early May, we started reopening our stores. And while we're very proud of our strong digital business, it's nowhere near the ability -- nowhere near has the ability to offset the pressure that, that created. That being said, when this all unfolded, Oliver, we tapped 2 key priorities. One was to ensure the health and safety of our people and our customers; and secondly, to ensure the financial viability and liquidity of the company. And as we emerge at least out of this chapter of the crisis, we feel very good on both fronts. I mean on the first priority in terms of safety, right as the stores were closing, we had a very comprehensive effort to make sure that come the day when we'd reopen, we could open in a very safe way. And in fact, the beacon we set forth was to be amongst the most safe in retail and make sure that our customers and our associates will feel comfortable in our space. And I can address that later, but suffice it to say, we feel very pleased with the progress there. And then secondly, on the liquidity side, the team did a great job, Jill and our legal team and the entire finance organization, to make sure we can navigate that period when our stores were closed. And as you know, we took out $600 million of bonds, we upsized our revolver and we ended the quarter with $2 billion of cash on the balance sheet. Also, a big shout out to all of our vendors and partners who were terrific through this process to give us the opportunity to navigate and preserve that liquidity. So where are we today? We started opening our stores on May 4. And as of yesterday, we now have 90% of our store fleet open. So that's 1,047 stores that are now open. And I will tell you, we're very pleased with the sequential improvement that we've seen in our stores. We announced on our earnings call that we were seeing 50% to 60% productivity. As we sit here now quarter-to-date, we're at 75% productivity of the stores that are open in aggregate. And let me remind you, we're also operating with reduced hours. For the stores that have been open the longest, so those that started in the early part of May, they're even doing a little better than 75% productivity. So we're encouraged with the signs, but I will tell you, it's still a very fluid environment. And as I said, our priority is to make sure that our customers feel comfortable in our stores, and that's a long-term strategy for us as we play out the new normal of what safety looks like. So those are stores, again, and we feel good about that, and we have plans to, of course, open the rest of the fleet as conditions are appropriate to do so. On the digital side, we also spoke on our earnings call that we were pleased with the acceleration on digital. And we had shared that in April, our digital sales were up 60%. For the month of May, our sales were up 90%. So even as our stores have begun to open, we've seen the digital business continue to perform at very high levels. And that's driven off of a lot of things, Oliver. It's driven off of the relevancy, adopting our site to be focusing on categories that people are interested in right now, like active and Home and kids' products. It's about the marketing that we put in place. And lastly, it's about the innovation, things like curbside drive up that, we stood up very quickly. While that had been a practice in, say, grocery for some time, fairly new to our industry, and we stood that up in a matter of 2 weeks so that we could take advantage of how customers are shopping. So all that being said, I'd say we're pleased. We're cautious though because we know it is a very fluid environment. And again, let me remind you for the quarter, we still had a chunk of the quarter where our stores were closed, but the trends are encouraging.

That's really helpful. And congrats on the agility and getting more and more open. Michelle and Jill, do you see regional trends evolving in terms of the opening? And has it been difficult to plan labor and inventory in a time of uncertainty to optimize what was unknown and how much customer receptivity there was to the opening?

Yes. It's a great question, Oliver. I would say that Kohl's, our strength is in operations. And I think more and more, it's around agility and being able to respond to whatever trends are coming our way. We took a very thoughtful and prudent approach as we began to open stores. One, we needed to make sure that we had all the equipment and supplies and the team got after that day 1, ordering plexiglass barriers for all those cash routes across 1,100-plus stores is no small feat. And the fact that the team could order those, get them and install them in such a swift time, I think, is really kudos to our team for being able to do that. And if you have the chance to go inside of Kohl's and you can see, I think you will agree that we are best-in-class as it relates to how we're operating in a safe environment. So from plexis, all of our associates are mandated to wear masks. We've created social-distancing markers. We have special hours for folks who have concerns around their health, whether it's senior citizens or other folks who have concerns. So I think on that front, we've done a really nice job. And kind of back to your question on regionality, as we made the decision on when and where to open, clearly, the #1 thing was, is the government allowing. But then we also took into consideration local health data. We took field feedback and even customer sentiment, which kind of then created this road map. So literally every week since the beginning of May, we're not done yet, we're opening those stores. I would say, from an inventory standpoint, again, we have a lot of agility. We're leveraging our stores to fulfill digital orders. So we're upwards of 40-plus percent of our digital orders that are being fulfilled by the stores. And so that's been very useful, especially for categories like Home that have done so well over this time period. And it's allowing us to leverage that inventory that was sitting in the stores for 6-plus weeks that we hadn't been able to sell. And again, I think the customer receptivity, I would say, across the board, to your regional question, has been very consistent. We do customer-engagement surveys in our stores. The proactive feedback we're getting on the measures we've taken has been very positive.

It's also really a nice positive that digital momentum has kept up even with reopening. Was that a surprise? And what do you think underpins that? Because it's a nice thing that they've been able to -- you've been able to maintain both.

Yes. I don't know if surprised, but we're really pleased. I would say the team has put a lot of focus on it. Again, back to that theme song of agility, but adjusting the website experience to speak to categories like working from home or cooking at home or staycation, working out at home. And so those were categories we didn't necessarily have before but they're highly relevant in this environment. So that's driven sales. I mentioned digital media, social media and adjusting those messages so that it really speaks to where people are at this point in time. And so that's clearly driven the business. And so for me, that's -- yes, part of it is, of course, COVID-related, but another part is just continuing down this journey we've had for some time, Oliver, that we really want to be a significant leader in omnichannel and having a thriving digital business is part of that. So to me, those continue. As many people say, COVID-19 is the great accelerator on so many trends and clearly, for us, we're benefiting from the acceleration on an already kind of high-growth channel for us. And I mentioned it earlier, but it's worth repeating that this curbside, new innovation that we've introduced that's now becoming relatively commonplace, feedback we're getting on how our team is executing that has been tremendous. And that will be something that we will continue forward because convenience is always really important to our customers.

You did touch on this a lot, Michelle, but what do you think are permanent changes? We're asking all teams on permanent and/or surprising changes. And as you continue to be an innovator on the role of the store, are you rethinking the role of the store post this?

Yes, it's a great question, Oliver. Well, I'll start with the one I was just talking about, which is the adoption of digital. With this, what's happened over the last few months, just being a tremendous accelerator to trends that were already there. So maybe it would have taken us, in normal time, 5 years to get to this level of penetration and consumer adoption of digital, but we're seeing it now. And we're even seeing in our own business, customers that were originally store-only customers, now they've moved. A lot of them have moved over to digital. I think that's really powerful because they're going to come back to our stores, but now they're shopping us multiple channels. We know that those are our most highly valued customers. So digital is number one. Second, I would say, value. I mean there's always -- there's a lot of -- always a lot of equity on value. And I think whether it's family values, quality and value, but this pause that we've all had, I think, has taken an opportunity for customers to really put greater emphasis on what value means. Again, I'll go back to Kohl's, I think we play in that space, part of our key equity. We're going to evolve how we deliver value, but it will always be part of our brand DNA. Third, I would say, trust. Again, I think this whole experience has put a greater spotlight on the importance of trust. And consumers wanting to put greater emphasis and go back to brands that they believe in and trust. Again, I'll go back to our business. I think Kohl's is a trusted brand, great Midwest values, people really like us. I mean I've seen that as I've gone around the country now as we've opened stores to connect with our associates and consumers and literally customers thanking me for reopening the store, and that's been extremely rewarding to see. And not only brand Kohl's, but then also the trusted brands that we sell, so iconic brands like Nike, Levi's, Carter's, Under Armour, adidas. More than 60% of our business now is national brands. And these are phenomenal brands. And in many cases, we're the #1 retailer of these brands. So I think that's an opportunity for us going forward. And then lastly, you said the role of the store and I'd answer that in a couple of ways. Even someday when there's a vaccine for COVID-19, I think the elevation of the importance of safety and cleanliness, that will be permanent. Will we always have plexis? Will we always wear masks? I can't -- who knows, we'll see how this evolves. But I do think there'll be a greater emphasis on how stores are organized, how clean they are, how inviting they are. And that has always been something we've been focused on. We've heightened that approach, of course, with what's going on. And then for us, you mentioned earlier, Oliver, our emphasis on innovation. And we see a tremendous opportunity to continue to innovate and evolve how we leverage our stores. There's both the customer side of it, so things like convenience, whether it's our returns partnership with Amazon or curbside or other things we're thinking about. And then also taking advantage of the stores being a hub for omnichannel experiences, Ship from Store, et cetera. So we've had a strong store base, pre-COVID. 99% of our stores are cash flow positive. We believe in our stores, and we're going to continue to focus on the relevancy of our stores as we go forward.

Yes, Michelle, that segues a little bit into brands. You've been really thinking about brands and you announced that you'll exit out of some brands, and you have a really great agenda in terms of driving relevance to the younger customer. What should we see going forward in terms of national brands and the development of your own brands? And what do you think is important as you really appeal to a new, younger generation as well?

Yes. So there's a few things to that question, Oliver. First, I would say, the role of brands, we've always had a great balanced portfolio of iconic national brands that I was just speaking to and then very relevant, value-oriented private brands. I'd say over the last couple of years, as we took a step back, we just -- we had too many. And I think especially at a time like this, it's giving us the opportunity to say, what are people looking for? Maybe they're looking for greater clarity and simplicity. And so that's an opportunity for us. I will tell you the brands that we announced on the earnings call, the 8 that we're exiting, that was already in the works pre-COVID. But I think you can expect to see more of that from us. When we've been at our best, we've been highly focused, we've had great clarity, we've narrowed our choices. And I'd say we can be really confident in the things that we put in front of our customers. I think for Kohl's, there's going to be opportunity as we always are looking for new brands to introduce that are relevant to both existing and new customers. And then I think, again, you can expect us to see more editing, us to do more editing, especially on the private brand, as we make the shopping experience more clear to our customer. And then for younger customers, that's an opportunity. I mean we have to make sure as we approach this opportunity, we are still being true to our core customer. They're really important to us, so continuing to drive innovation and new thinking and new brands for that customer, while also appealing to this younger customer, the next generation for Kohl's. So you've seen us do another thing -- a few things. Nine West is a good example, which I would say is really intended to span multi-generations. Just in March, we introduced Elizabeth and James, so we're in the early days, but they have a great, strong social media presence, and the product is very modern and contemporary. We have our own proprietary brand that we've been introducing called Vylette that really speaks to the younger audience. And then down the road, new services and merchandising opportunities like the Outfit Bar that we've had in test. And it is our intention to ultimately roll that out. But in terms of how customers are looking to shop and how they dress, they have the opportunity to mix and match lots of brands. Very rare today that customers are living mono-brand. And we saw great success in the test where customers are pairing Levi's with SONOMA, with Nine West and showing them how to outfit. And so you can expect to see us do more things like that, both in our stores and digitally.

Yes, and accommodating how people are rethinking shopping.

Absolutely.

A hot topic is store bases and the size of store fleets, especially as everybody sees such tremendous digital momentum. 99% of your stores are profitable. So what are your -- what's your current thinking about the size of your fleet? And a related question is, unfortunately, competitors will close. What's the playbook in terms of thinking about opportunities there?

Sure. So Oliver, I'll start with the store base and Michelle can talk to kind of about our competitive store closure strategy. But as Michelle indicated, the stores are a strong asset of ours. They're 99% cash flow positive. So we feel very strongly that they have a big role in Kohl's future. We have great locations. 95% of them are off-mall or within 15 miles of 80% of the population, so we have a large level of convenience. They also support our digital growth. So we look at ourself very much as an omnichannel retailer. Michelle mentioned 40% of all of our digital sales were fulfilled from the store. We were able to add conveniences like drive up, so you can have that instant gratification of getting your item without having to come into the store during the pandemic, which was great. The size of the store was something we've always talked to about. Could we be smaller? And we had tested smaller square footage, 35,000 square foot stores to help us get into smaller markets as well as 55,000 square foot stores. I think today, having over 75,000 square feet of selling is an advantage. It helps us facilitate the social distancing, it helps with the cleanliness in the space, so we do think that's helpful today. Now with that said, obviously we're in a very uncertain time. So we aren't making any future decisions at this point with our fleet. We'll wait until we kind of hit what is the new norm, what is the consumer telling us and we'll make our decisions go forward from there. I think that we just have the time to tell, and we also have about 50 to 70 leases coming due a year, which adds another level of flexibility. So if we do make decisions to relocate, close or downsize, we're in a very advantageous position, given that flexibility.

Great. And I'll build on Jill's comments as it relates to our competitive opportunities. I think we're in a great position. We believe in our stores; we have a vast store base, as Jill was just speaking to; and we're optimistic as we come out of this point in time that we will rebuild our business. As you know, there are opportunities for us. And I'd say in the short term, we will take that -- we'll take advantage of that. So we've demonstrated that when, for example, there are store closures that we can leverage our direct marketing experience, our loyalty program, our targeting -- geotargeting capabilities to take advantage of stores that they're closing. And back in 2017 and 2018, you saw the benefit on our business when we employed that strategy. So we're intending to do that in the short term. Over the longer term, it really is about Kohl's playing its best game, and we're focused on our key initiatives. So around product, as we talked about, which is continuing to get that core business healthier while we bring in new exciting brands to drive traffic. It's offering tremendous value, especially through our loyalty program, and it's around our experience and at the convenience of our experience both in our stores and digitally, we're continuing to invest there. So driving that relevance, acquiring new customers. We have a base of 65 million customers. That was at an all-time high last year. So we're looking to lean into some of the things that have worked with us to continue to drive that opportunity. But I think while this period of time has really been really difficult on so many levels, and we've had to navigate this, I think, ultimately, Kohl's will be in a stronger position for what we've gone through.

I mean another topic that's been relevant is inventory management and thinking about inventory planning for 3Q and holiday. Could you update us on how your inventory position is looking now? And what are your strategies for having the right kind of newness as well as repurposement? Because there's been rapid shifts in what people would prefer, and you've been able to respond to it.

Sure. So you saw our actions in Q1, our receipts were down 30%. The bulk of that reduction was obviously in April because it was post-store closures. We also told you we're going to cut our receipts in Q2 by about 60%. So we're making a quick adjustment to the inventory to really match it up with what our sales have been doing. With that said, we have made the decision to pull forward some back-to-school receipts into the end of June and early July. So there will be that newness and freshness in our stores. As we invite customers back now as we open, we'll have a reset of some freshness towards the end of June into July. And then as we move into the holiday period, and we're right in the midst of that, I think we're taking a very conservative approach. Obviously, times are still uncertain. Depending on how you see this recovery, if you feel like there's another W recovery happening in the back half, we want to be prepared to make sure we're adjusting for those type of items. However, with that being said, we have strong vendor relationships. We leverage them, as Michelle indicated, during the pandemic when we were closed. We'll continue to leverage them and have a chase model ready to go after that inventory. And the best example I can give you, Oliver, is during this time, Home has been an outperforming category. It's exceeded our expectations. And as -- we've been able to go back and chase into that inventory to make sure we are there for the customer and to preserve that sale. So that's kind of how we'll continue to approach inventory as we move through the year, very conservative, then deploy the chase model that we've been successful in using in the past to make sure that we are capturing all the sales.

Yes. And I've asked you about this previously. In the promotional environment, as that involves, how are you thinking about different models for driving demand and what you may need to do as the environment will shift? And there will be competitors promoting aggressively, likely.

I would say we're definitely ready for a promotional environment. In fact, I think it's a core strength of ours. We're high/low. We've used couponing. We have a lot of data on our customers that help us inform what drives their behavior. So we do anticipate, with all the disruption, that it's going to be highly promotional. In fact, if we look at our gross margin, 1 of the 2 things that we've called out that will persist as pressures is the heightened promotional environment, but we feel like this is definitely a market share time, and we need to be aggressive to go after that market share, and we'll do that through the promotional activity as needed and leverage that core strength that we've established for so long.

Yes, Jill, as we do look at the gross margins and the SG&A and our models, more generally, would they have troughed in Q1? And would you assume that they would improve sequentially as stores continue to reopen? Any general thoughts there?

Sure. From a margin perspective, I would definitely say Q1 is our low point. You saw, as we reconciled, we took some inventory actions that obviously had a large impact to our gross margin. That helped us feel very clean with how we address the inventory, especially with the establishment, for the first time, of a lower cost-to-market reserve. The 2 pieces, I think, that you'll see persisting, Oliver, is, one, the cost of shipping. As Michelle mentioned, our digital business continues to outperform up almost 90% in May. So we know that, that will be a heightened penetration. So we'll see those headwinds continue. And then as we just talked about, we do expect the promotional activity to be heightened, and we will participate in that, which will also weigh in on the margin, but you will see it improve from Q1. In terms of SG&A, I think we have a core strength with SG&A. We've had operational excellence as 1 of our top 2 priorities for some time. We've shown we have a really cost-disciplined culture. So it was down, ex the investment we made for COVID, 19% in Q1. We will continue to manage that in a very much variable space. So I think in places that we've treated as fixed in the past, such as marketing, we pivoted there very quickly. We cut all of our print, all of our broadcast, and we're solely in the digital channel today. Historically, we would have leaned into marketing to drive sales. Given the environment, we knew we couldn't drive sales in our store channels, so we stayed solely in digital. We actually opened with just the digital channels working in marketing and we'll start moving into print next week right in front of -- and broadcast right in front of the Father's Day holiday. As well as if we look at technology, we used this opportunity to really reevaluate and rationalize our third-party spend, look at different contracts. As we pulled back on our CapEx, we were able to pull down some spend there. That's been highly fixed. And then you and Michelle spoke to the stores earlier, very strong operations, but we did open in a limited capacity, both with hours, we only have 1 entrance opened, we don't have fittings rooms opened. So those are all ways that we're able to manage down the labor cost to match with where the sales demand are as well.

Yes. As you rethink cost at large, Jill and Michelle, how -- the question of fixed versus variable's coming up a lot and also the new reality in retail and readjusting cost bases, how are you thinking about that transformation longer term? And related to that, if you could speak to projects, you may either be pulling forward or pushing back, given the reality of the crisis.

Sure. I think from a variable cost, I would say almost everything in our case is variable. We looked, like I mentioned, across marketing, technology. At the beginning of the year, we had done some rationalization of our corporate resources. So I think everything we're looking at is really variable in this time frame. Even rents, we did take the expense, but we used the opportunity to work with our landlords for deferral. So all things are on the table from an expense perspective, in my opinion. In terms of projects that we pushed, obviously we cut our CapEx from $750 million to about $250 million this year. One of the projects was EFC 6. We did pause that. As you heard, we're using our stores to a much higher degree. So it was something we didn't see we needed for capacity, given the current state, so that was a pause. But projects such as beauty is something we had talked about, is very important to us. And so we had preserved some capital there. So we're very much rationalizing to what is our [ mins ] and then pulling back and saying, what is the one place we might want to go from a growth perspective. As the year continues, we'll continue to reevaluate what projects should move forward. We are able to do things in technology, though. Drive up, which wasn't necessarily on our list; work from home for everyone, including all of our call centers. So we've shown that we're able to do things in a very quick and inexpensive manner and have a pretty impact -- big impact to our business from a capital perspective.

Yes. A relevant question is digital and thinking about digital margins, which we ask about semi-regularly. With curbside, the rise of curbside, how might that impact digital margins and also the opportunity to reduce split shipments? And what do you see ahead for managing that as best as possible as that will likely continue to grow as a percentage of total, your digital mix?

Yes. I wouldn't say, Drive Up to me is great because we don't have a shipping cost. So as you know, I loved Buy Online, Pick Up In Store. Drive Up is a close second. I love getting the footsteps through BOPUS, but not having to ship is definitely a way that helps us mitigate some of those costs, and it also allows us to unlock the value of the inventory in the store to be used in multiple ways. So that's definitely a great add-on for us. I think one of the big investments that we're going to continue to look at is, to your point, is the inventory allocation. So how do we get better at placing inventory so we don't have the split ships? Because, as you know, 2 packages double the cost for the same amount of sale. It's been a keen focus for us. We'll continue to heighten that. I think we've gotten smarter on our inventory placement over time. We have leveraged the stores more, which helps mitigate some of that because we have multiple ways in order to service the customer but it will definitely be one of the top investments we continue to make over the next couple of years from an operational excellence perspective, just given the costs associated with it.

Yes. You've talked about this throughout, but departments you could expand or scale back. What do you think will happen with your business mix over time? Are there things we should know with AUR and/or margin mix tendencies as that happens?

Yes. So Oliver, it's a great question. And I would say, first off, we don't want to be overly reactive to what's taken place over the last couple of months because this is a point in time. But that being said, it is giving us the opportunity to take a step back and really reevaluate the Kohl's of the future. And some of these things, we are already on the path, and I think we'll take advantage of the speed and agility and all the great skills that the team is learning to -- or heightening to make some moves even more rapidly. So I think a good example, and Jill just mentioned it, is beauty. We see that as a tremendous opportunity for the company. It is our #1 category priority. We are a small player today. But what we've seen from the customer as we've put elevated product, probably the best example in that business has been fragrance, what we've done with very high-end fragrances, the customer is responding. So we have 12 new experience test stores up. We're committed to expand that further. We're in the process of evaluating exactly what that looks like. We're in lots of conversations with lots of different brands, and I think we provide a new customer for these beauty players that they haven't had access to before. And clearly, we provide a convenience play as well for customers they are trying to reach. More than 70% of our customers are women. And so that is kind of instant access, again, with 65 million customers and strong. So that's a tremendous opportunity and our intention like we have in the 12 stores is to build a very inviting and I would say, sizable beauty, almost specialty shop-in-shop, like a great experience that our customers want to engage in. So if we build that, other things have to go, and we're looking at that. I would say, categories like accessories can probably be trimmed down a bit. If we look on the apparel side, there's probably parts of apparel, the very dressy part of apparel that can be trimmed down. We'll leverage our localization capabilities to make sure we're making those decisions smartly. But I think what you can expect from us is a bet on beauty, a bet on some of the winners that we've been feeding over the last couple of years, like active and athleisure. And Home has been a great driver for us the last couple of years, and we've just only seen that grow over the last 6 months.

Yes, you have that strong heritage in Home. So you've also been a leader with in-store fulfillment and thinking about using your stores as fulfillment. One key theme for us is automation and retail automation and robotics as well. What do you see ahead as a need there as that evolves? And what might you do with fulfillment or inventory management along that line?

Sure. I think, first, in our EFCs, like I've mentioned, our newest EFCs are highly automated. In fact, we've taken a ton of labor out of the buildings in terms of how it's picked, even how boxes are assessed. It's done based on metrics, they're shipping less air. So there's a lot of efficiencies that we're putting into our newest generation of buildings. So now it's a matter of looking backwards to upgrade some of the existing. So automation continues to move at a swift pace. As we've added in, we are at the cutting-edge there. Within the stores, it's a little more difficult just because there is a human aspect that you're interacting with, but we have added a lot of technology. They have handheld devices, which is helping them source where the item is, helping them bundle products together so we can have the most effective path to picking. It's really prioritizing the pickup versus the ship-from-store. So we're trying to spend the least amount of time out picking and the labor perspective. So we'll continue to heighten that amount from a fulfillment perspective. But then additionally, you'll see us testing if it's self-checkout, mobile checkout, other ways that we can use automation to heighten the level of community to our customers, but also then help us manage the labor in our stores and whether it's moving the labor from a checkout to more of a valuable side of labor, whether it's through servicing and beauty like Michelle had mentioned. But those are ways that -- you've seen this in the past, Oliver, as we've had pressures such as wage pressure, we have found ways to become much more efficient in our processes to offset those type of pressures. And that's really the lens to which we'll continue to work in our stores and our fulfillment centers to find the most efficient way.

I also believe your loyalty program is a competitive advantage, and it's also -- it has a really rich heritage and iconic, and people love it. So what's ahead with leveraging that for personalization? And how do you see that program evolving to be the right level of simple for the new customer as well?

Yes, Oliver, so you're absolutely right. I mean our loyalty program has evolved to be really best-in-class and has a deep, rich heritage, really starting with our private credit card, the Kohl's Charge card, which penetrates a 55% to 60% of our sales, which is, again, truly world-class, and our customers love it, and clearly, we see that in the business. And then from the Kohl's Charge, we introduced Kohl's Cash some time ago, which has become iconic in its own right. And then more recently, our points-based program. What we've learned is, while each of these are fairly successful and robust on their own merit, there really is an opportunity to bring them together. And so we've been testing an evolved program that really simplifies the program into one Kohl's Rewards program and all of the rewards are based in Kohl's Cash. So we're excited about that. It's tested really well, and we're looking at probably sometime in the fall or slightly beyond to expand that further. And we think that can be a sales driver for us. And then personalization goes hand-in-hand with that. I mean the opportunity I mentioned, 65 million customers, 30 million-plus that are part of our loyalty program. We have an e-mailable base now of 50 million customers. So we're getting data from all of these customers, and we've invested quite a lot over the last 5 years to create personalization capabilities. So it could be things as simple as reminding you when you have Kohl's Cash waiting to redeem. And while that seems simple, we've seen customers respond to that. I think more powerfully, it's customizing content, so we're doing that, especially across e-mail, but now more and more with social. And then ultimately, we do see personalized offers being a lever for us in the value realm. And so we've been testing that as well. So I think the best is yet to come on our personalization capabilities, but we're starting from a strong foundation.

Prior to this, we had Anna Wintour on, and she partnered with Amazon on projects, and you've been very creative and proactive about your relationship with Amazon. Could you tell us some of the rationale there? And what do you see evolving more generally for that relationship?

Yes. So thanks for that question, Oliver. We've been really pleased with now our, call it, multiyear relationship with Amazon, which started with some early testing and iterating. We like to test, they like to test and ultimately, culminated with the rollout across the country of our Amazon Returns program. I think from the beginning, and like any great partnership, you bring in unique and complementary assets. So clearly, Amazon with their broad customer reach and their world-class capability in digital and e-commerce. For us, what we brought was physical brick-and-mortar presence. 80% of customers live within 15 miles of Kohl's. And for us coming together with both sharing an obsession to please and delight the customer and make things more convenient in their shopping journey. So Amazon, obviously very convenient digital channel of purchase. And then for us, what we've learned about our customers is people love the ease of just returning items into a store versus packaging it up and dealing with all of that. And so we were very pleased last year to see the acceleration and adoption of the Amazon Returns program, tremendous feedback, world-class engagement scores from our collective customers on what that experience is like. And I will tell you, as we've reopened the doors of late, we're seeing those Amazon Returns ramp back up, and our customers are very excited to have that offering. Where that goes from here, who knows, but I would say that this is, again, a tremendous example of partners bringing together their assets and finding a new way to serve the customer. And that's something that Kohl's, I think, does pretty well is whether it's brand partners or marketing partners, social media partners, is finding those win-wins and finding ways to serve and delight the customer.

I mean another company that we do like a lot is Planet Fitness and what they've done with health and wellness. Could you talk about your partnership there? And more broadly, how are you thinking about partnerships, because you've been agile and creative and collaborative, to look for these win-win relationships?

Yes. So first on Planet Fitness, they're a great partner. I'd say we're still in the early stages of really understanding what it means to deploy and scale this rightsizing initiative that we called it, where we're taking a store that's 90,000 square feet, and we're shrinking it down to, say, 40,000 and then subleasing the space. Early days, but whether it's been Planet Fitness or other partners we've worked with, I think that experience has been very positive. So now it's for us to look over the long-term and make sure that there is an ultimate economic win-win for both of us. And importantly, first and foremost, a customer win-win. But so far, so good. We'll keep you posted on that. But I think it's a great example of this culture of innovation and testing and trying different things. And we'll look to do more of that. I think as it relates to partners in general, I often think about Kohl's as just this tremendous platform to expose new brands to fortify existing great partnerships. I think our example with Curated by Kohl's is another great example, where we're looking at these emerging brands, many of them digitally native, but not exclusively. And we bring 65 million customers, close to 1,200 stores, a thriving digital channel. Those are tremendous assets. And I think, especially in times like today, for newer emerging companies and brands, building that out on their own is very expensive and has lots of barriers to it. So I think we really can be that platform for small and large brands and companies. And you'll find new ways to create a sense of discovery and great experiences for customers. So we get that, right? We're introducing these new exciting things to our customers, bringing that discovery and these brands get a tremendous platform to scale and grow their businesses.

Yes, that's important to surprise and delight and also use your influence as a platform for discovery and infrastructure to help retail at large. So I wanted to ask you, as you do look ahead, there is a lot of uncertainty. What are some key risk factors or things that may not be in your control, that you're monitoring as well as we look forward and everybody does their best to control the controllables?

Yes. Well, I think we were -- both remarked earlier, it -- this is a time of unprecedented uncertainty and fluidity. And I think the most important thing for us is to stay present, agile and responsive, not overreact, but respond where the trends and the realities of our customers and our associates are. So where does the health crisis go? We're just staying really true to that, and we'll keep our 2 priorities squarely in front, first and foremost, ensuring and protecting the health of our associates and our customers. We will, of course, protect the financial liquidity and viability of the business and do what we need to do. But I think what we've demonstrated over the course of a pretty severe crisis, when 7 weeks your stores are closed, that we were able to navigate through this given the agility of the organization. So those are things that won't go away. I mean obviously the economic pressures with our customers. I think as we think about Kohl's, we're a value player. So that's always been true to our DNA. What we saw in the last recession was customers did gravitate to value brands. And coming out of that, Kohl's did benefit. So we will make sure, again, that we're pricing and promoting in a relevant way. So I think the health piece, the economic piece and then I just -- I mentioned earlier, trust, I think, will continue to be really important. So Kohl's will be kind of that trusted partner for our customers and the families we serve all across the country.

Yes, well, congratulations on the reopening and all the creativity that you're really exhibiting to connect and be a trusted resource in neighborhoods and a partner to the communities and also as retail evolves, retail needs this leadership. Thanks for your time.

Thank you, Oliver. Take care.

Thanks, Oliver.