Kohl's is placing its bet on babies to drive its turnaround, with Babies R Us returning.

• This week, Kohl's is launching 200 Babies R Us stores nationwide.
• To attract more young families, the retailer aims to provide an additional incentive for them to visit the stores.
• Additionally, the company is increasing its product offerings by growing its home decor selection, launching a maternity line, and increasing the number of impulse items.

WOODLAND PARK, N.J. — is thinking small to rev up its sales.

Kohl's is introducing Babies R Us shops in its existing stores nationwide, with a goal of having 200 by September. These shops will offer a range of new baby products, such as shampoo, strollers, and car seats, in addition to the clothing that Kohl's previously sold.

The Wisconsin-based retailer plans to target young families with its move, offering products for home decor, back-to-school preparation, and new additions. Its approximately 1,170 stores, located in suburban strip malls, are easily accessible for busy parents.

In addition to the baby category, Kohl's is expanding its selection of home decor, gifting, and impulse items. According to CEO Tom Kingsbury, these expanded categories, including Babies R Us, represent a $2 billion-plus sales opportunity in the future.

The decline in births in the U.S. last year, with a total of 3.59 million births, is the lowest in more than 40 years, according to provisional data from the U.S. National Center for Health Statistics.

On a store tour in New Jersey on Wednesday, Nick Jones, the Chief Merchandising Officer, unveiled the first Babies R Us shop. Customers can experience the pricier items, such as strollers, cribs, and high chairs, outside of their cardboard boxes. The shop features popular baby brands, including Hatch, Frida, Graco, and Baby Bjorn.

Kohl's has recently added Babies R Us to its online store, featuring twice as much merchandise as the typical 800 to 1,000 items available in-store. In addition, Kohl's will launch a baby registry in the fall.

Kohl's will introduce maternity clothing from Motherhood, a direct-to-consumer brand, which will be exclusive to their stores. Additionally, more merchandise is on the way for expecting families, including baby apparel from Nike. Each shop will range in size and be set up next to the baby and kid's clothing currently found in all stores.

Kohl's is expanding its Babies R Us shops in an effort to boost sales at a time when it needs growth drivers. Despite generating $16.6 billion in net sales in the most recent fiscal year, which ended in early February, this represents a nearly 14% decline from five years ago.

Kohl's anticipates a decline in full-year net sales of between 2% and 4% after reporting a surprise net loss of $27 million in the fiscal first quarter and revising its full-year forecast in late May.

Despite the S&P 500's nearly 16% gains this year, Kohl's shares have fallen 24%.

Kohl's, like other retailers, has faced challenges with shoppers delaying discretionary purchases while spending more on necessities such as groceries and housing. However, according to Dana Telsey, CEO and chief research officer of Telsey Advisory Group, Kohl's faces additional challenges in terms of its merchandise, which needs to be improved in order to attract new and existing customers.

""Brands must differentiate themselves and have a unique identity to matter in the competitive market," she stated."

Lower births, but more premium products

Kohl's is placing its bets on the baby category, with innovative products and high-end items such as luxury strollers driving spending.

The baby gear market generated $7.5 billion in sales during the 12-month period ending May, representing a 4% increase from the same period in 2020, as reported by Circana, a market research firm that specializes in tracking the industry. This encompasses a broad array of products, including car seats, strollers, bottles, bassinets, high chairs, cribs, and breastfeeding systems.

According to Stephen Hinz, an industry advisor at Circana, the demand for premium baby products has driven sales.

The median age of U.S. women giving birth, according to the U.S. Census Bureau, is 30 years old.

"At that point, people were in a different life stage. They were older, more established in their careers, and more likely to own a home. They had more disposable income and, as a result, had greater influence on the things they brought into their homes."

Despite the lower birth rate, the market has remained stable, with parents investing in high-end items like natural wood cribs and rotating car seats, and families prioritizing their child's health and safety even during tough economic times, according to Hinz.

New parents now have a wider range of retailers and brands to choose from, as well as new methods for registering for baby items. Big-box chains have expanded their baby departments, and some have even launched their own baby registry. Additionally, universal registries like Zola and Babylist have become increasingly popular, allowing customers to select items from multiple retailers and brands' websites.

In an interview with CNBC in March, Kingsbury stated that there is an opportunity for market share growth in the category due to the bankruptcy and store closures of Bed Bath and Beyond, the parent company of Buy Buy Baby.

Customers who shop at Babies R Us are likely to purchase items from other departments as well.

Kohl's is following a similar strategy to its Sephora beauty shops by introducing them in all its stores. According to Kohl's leaders, these shops are attracting a younger and more diverse customer base.

Kohl's will determine if it will open additional Babies R Us stores based on the performance of the first 200 shops, as stated by Jones.

Is Babies R Us still relevant?

Kohl's will evaluate the relevance or staleness of the Babies R Us brand as it relaunches.

WHP Global, a New York City-based brand management company, now owns the brands of Babies R Us and its former parent Toys R Us. The firm has previously attempted to revive other brands such as Bonobos, Rag & Bone, and Isaac Mizrahi. In 2017, Toys R Us filed for bankruptcy and closed its stores.

The financial details of the agreement between Kohl's and WHP Global, announced in March, have not been disclosed.

WHP Holdings also struck an agreement with Macy's, which has opened Toys R Us shops in many of its department stores.

Since tastes have changed since the '80s and '90s, Kohl's move is risky, according to Natalie Gordon, founder and CEO of Babylist.

She remembered how retailers failed to deliver a satisfactory customer experience, with limited opportunities to test products before buying them. This experience inspired her to create Babylist, which aimed to improve the shopping experience for new parents.

"The brands I encountered made me feel like a child with their pink and blue designs and cartoon characters. As a woman giving birth, it didn't connect with me at all."

Kohl's and WHP revamped the Babies R Us brand with a contemporary look, featuring the familiar brand font, according to Christie Raymond, Kohl's chief marketing officer.

""Although we had credibility, we needed to modernize," she stated."

Baby photos are used to decorate the shops instead of pastels or cartoon mascots, like Geoffrey the giraffe at Toys R Us.

Babies R Us did not use influencer marketing during its peak, but Kohl's plans to partner with influencers on Instagram and TikTok to promote its shops.