Kohl’s is battling a concerning customer trend that continues to weigh on its sales, despite its recent efforts to win back shoppers.
The department store chain saw its comparable sales decrease by 0.9% year over year in the second quarter of 2026, according to its latest earnings report. Also, it earned $261 million in operating income, down almost 6.5% from the previous year.
Recent Placer.ai data also revealed that overall foot traffic at Kohl’s stores dipped 1.4% year over year in the second quarter. However, this is an improvement over the 7.7% decline it faced in the first quarter.
The smaller dip in traffic comes as it ramps up its deals to win back customers. Earlier this year, it launched its Deal Bar and Toy Towers, both of which offer items under $10 in stores. In July, Kohl’s priced thousands of its back-to-school products under $25.
Kohl’s sees core customers make ‘trade-offs’ when shopping
Despite these lower-priced offerings, Kohl’s CEO Michael Bender said on an Aug. 26 earnings call that customers remain cautious about their spending, which is impacting sales.
“Our customers remain under financial pressure, and they are becoming increasingly choiceful, actively seeking value in every purchase,” said Bender.
Kohl’s Chief Financial Officer Jill Timm said on the call that the company continues to see “choiceful discretionary spending” from its core low- to middle-income customers.
Related: Kohl’s drops generous offers as it tries to win back customers
She added that amid this behavior, customers are making “trade-offs” by shifting their spending to Kohl’s proprietary brands, which are generally offered at lower price points than national-name brands in its stores. Against this backdrop, Proprietary brand sales increased 3% year over year during the second quarter.
“We are seeing people trade into the opening price point (lowest price in a product category) into proprietary brands,” said Timm. “It’s where we’re making our investment from an inventory expectations perspective, and we know that that’s where the customer, they’re stretched, and they’re making those trade-offs.”
“They’re buying into our proprietary brands like Tek Gear and Active because it’s a little bit more within their budget as their budgets are being stretched,” she added.
Kohl’s CEO reveals what’s pressuring consumer spending
Bender emphasized that macroeconomic pressures are pushing customers to consistently look for value.
“We are operating in a challenging macroeconomic environment where our customers are experiencing persistent financial pressures from inflation in their everyday expenses, like gas and food,” said Bender.
U.S. consumers have indeed been cutting their spending in response to these financial challenges. For instance, a recent report from the U.S. Department of Commerce revealed that retail sales decreased by 0.6% in July from the previous month, making it the sharpest decline since May 2025.
Also, according to the University of Michigan’s Survey of Consumers data, consumer sentiment continues to decrease, dropping about 11% year over year in August. This trend comes as consumers grow increasingly concerned about the economy and high gas prices from the U.S.-Iran conflict.
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“Groups who are typically less-equipped to absorb increases in cost of living also exhibited stronger decreases in sentiment, including older consumers, lower- and middle-income consumers, and those with no stock holdings,” Joanne Hsu, a University of Michigan economist and director of the Surveys of Consumers, in a statement.
“With ongoing policy uncertainty including the Iran conflict, consumers anticipate further increases in gasoline prices both in the short and long run,” she added. “In addition to the pocketbook issues that have been central to consumers’ views of the economy, they are increasingly worried that prospects elsewhere in the economy could be weakening.”
Goldman Sachs chief economist Jan Hatzius warned in a note in August that his firm doesn’t expect retail sales to improve in the second half of this year as consumers face economic pressures, according to a Yahoo Finance report.
“We expect sluggish consumer spending growth ahead,” wrote Hatzius. “Although Friday’s drop in July retail sales partly reflected the negative impact of an earlier-than-usual Amazon Prime day, the revised sequential path now looks much more consistent with our view that the strength of real consumer spending in the spring was the temporary byproduct of the tax refund surge.”
“We expect real consumer spending growth to slow to 1-1.5% in the second half as real cash flow stagnates,” he added.
How Kohl’s plans to fix weak sales with key in-store changes
As consumers remain cautious about the economy and their spending, Kohl’s plans to make several major in-store changes to turn around its sluggish sales.
First, it will use the $150 million of tariff refunds it received in the second quarter to invest in offering greater value to its customers, including adding more competitive pricing.
“The realization of approximately $150 million of tariff refunds has provided us with even greater financial flexibility,” said Timm. “We are strategically prioritizing the reinvestment of these proceeds directly into our core business initiatives to better serve our customers.”
“We are deploying this capital to uphold our commitment to value while simultaneously strengthening our inventory position to support our opening price point brands,” she continued.
Second, Kohl’s is expanding its infant and baby apparel business, a move that directly competes with Target. Earlier this year, Target grew its baby category by launching “Baby Boutiques,” which features 2,000 new baby items, in nearly 200 of its stores.
Kohl’s is following in Target’s footsteps by expanding its partnership with Babies”R”Us.
“We are expanding our offering of baby gifts and accessories through our Babies”R”Us partnership,” said Bender. “We recently rolled out in-store fixtures across all locations to highlight our top-selling baby gifts and accessories, driving solid second-quarter growth. We’re also completing 56 additional Babies’R’Us shop build-outs in September.”
Third, after seeing strong sales in its accessories business in the second quarter, Kohl’s is also expanding this category by rolling out new jewelry case lines and adding updated fixtures in its stores in the fourth quarter of this year.
“We are rolling out an additional 350 fine jewelry case lines in the fourth quarter, bringing the total store count with case lines to 549 stores,” said Bender. “In addition, 320 stores will be receiving elevated fashion jewelry fixtures by November. These fixtures will highlight newness and inspire customers to complete their look with fashion accessories.”
Kohl’s saw its comparable sales dip by 0.9% year over year in the second quarter of 2026.UCG / Getty Images
Kohl’s has big plans to reverse struggling Sephora sales
Kohl’s is also making significant changes to its Kohl’s at Sephora business after sales in this category dropped by 4% year over year in the second quarter. Bender said that Sephora sales were “pressured” by distribution headwinds.
“As far as Sephora is concerned, what I would tell you is that we’re in a cycle where a handful of major brands have experienced expanded distribution,” he said. “We still have a robust pipeline of existing new brands. They’re just not big enough at this point because they haven’t scaled to offset the softness that we’re seeing from some of those much larger, well-established brands.”
He highlighted that the company will focus on adding “newness and innovation” to its in-store Sephora locations. This includes offering new fragrance, haircare and skincare brands.
“In fragrance, we are introducing Khloé Kardashian and Givenchy, alongside expansions from Kaali and Jo Malone London,” said Bender. “This will be supported by new fragrance towers in 250 stores this November. In haircare, we are launching Emi Jay, Crown Affair, i.N.O., and Fromlabs, while our skincare category will debut Evereden, Topicals, and Ultra Violette.”
Bender also said that Kohl’s will add holiday outposts at its Sephora locations in 130 stores and will continue to “maximize” its travel and trial assortment to attract new customers.
As Kohl’s works to turn around its business, it expects its net and comparable sales to either decrease by 1.5% or remain flat for the full year of 2026.
“We’re operating in really uncertain times, and we have a lot of pressure on our customer from a macro perspective,” said Timm.
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