All retailers are facing challenging market conditions, however Kohl’s (USA) is in the unenviable position of serving a middle-class consumer who is being squeezed by rising inflation. By comparison, lower priced retailers such as Walmart and Target have been able to lure mid-tier consumers who are now looking for better prices. Off-price retailers such as TJX are winning consumer spending by offering bargain prices for name brand apparel. In Q3, Kohl’s net sales fell 7.2% to $4.28 billion, albeit beating estimates of $4.07 billion. Walmart reported Q3 sales grew 8.2% to $153 billion, surpassing Wall Street’s projections and raising its full-year outlook. Target’s total revenue for Q3 increased 3.4% to $26.52 billion. Revenue for the nine months ended October 29 fell 6.6 percent to $12.1 billion. Net income plummeted 60% to $254 million, attributed to the soaring logistics costs all retailers faced during the first half of 2022 and which only started to significantly ease up by late September. <blockquote> The retailer has tried a range of initiatives to set it on a more stable growth course. So far none have proved to be the long term solution that investors are seeking.</blockquote> Kohl's recently lost its investment grade credit rating, meaning its interest costs may rise significantly upon its 2023 debt maturities, according to Seeking Alpha. With more than 1,100 US stores and around $19 billion in annual sales in 2021, Kohl’s is the largest department store chain in the United States. <h3><b>Trying to Find a Way Forward</b></h3> Like many department stores, Kohl's faces rising input costs while consumer retail demand declines. Its former CEO, Michelle Gass, has been praised for her efforts to strategically transform Kohl's through brand introductions and partnerships. The retailer took advantage of shifts in e-commerce and entered into a returns partnership with Amazon. Kohl’s expanded its athleisure clothing business with brands such as Nike and Under Armour . It also reduced the size of a handful of stores and leased out the extra space to Aldi and Planet Fitness, made an effort to attract Millennials with new brands such as PopSugar and leveraged the popularity of Sephora by agreeing to have the beauty retailer open stores inside Kohl’s. <h3><b>Can Sephora Save Kohl’s?</b></h3> Despite these initiatives, Kohl’s is still struggling. It has improved its athleisure business and other areas, but the retailer’s women’s clothing business has slumped. Critics say that some of the partnerships that set Kohl’s apart as an innovator and leader are one of its greatest weaknesses. During a recent investor’s call Kohl’s said that “store sales outperformed digital and improved sequentially in Q3 due in part to having more Sephora shops open.” The importance of Kohl’s tie up with Sephora is clear by the inclusion of the Sephora name display just beneath Kohl’s on signage on the exterior of the store. It is starting to look more like Sephora stores with a Kohl’s store attached to it, than a department store with Sephora as a shop-in-shop. Naysayers believe that Kohl’s is relying too heavily on partnerships that it could easily lose, rather than building customer loyalty to things it has more control over, such as its own brands. If Kohl’s is leaning on Sephora to not only contribute heavily to sales, but also to drive traffic to their stores, where would that leave Kohl’s should the partnership with Sephora end? Although Kohl’s has stated that it aims to build its Sephora business to $2 billion by 2025, Sephora could for any number of reasons decide to end its tie up with Kohl’s. That has market watchers concerned.