Socially Responsible Product Sourcing

(Updated as of April 15, 2014)

OUR PHILOSOPHY

KOHL'S HOLDS ALL OF OUR VENDOR PARTNERS TO OUR TERMS OF ENGAGEMENT FOR KOHL'S BUSINESS PARTNERS (OUR POLICY). OUR POLICY IS DESIGNED TO PROTECT THE INTERESTS OF WORKERS ENGAGED IN THE MANUFACTURING OF MERCHANDISE PROCURED FOR KOHL'S, AND WE SELECT VENDOR PARTNERS WHO WE BELIEVE SHARE OUR COMMITMENT TO THE FAIR AND ETHICAL TREATMENT OF EMPLOYEES. OUR COMPLIANCE PHILOSOPHY FOCUSES ON TAKING CORRECTIVE ACTION ON IDENTIFIED ISSUES AND CONTINUOUS IMPROVEMENT. OUR POLICY IS POSTED AT WWW.CONNECTION.KOHLS.COM UNDER THE "NEW VENDORS" TAB.

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OUR POLICY

Our Policy spells out our expectations to our Vendor Partners regarding wages and benefits, working hours, prohibiting the use of child or forced labor (which includes, without limitation, prison and slave labor or human trafficking for those purposes), discrimination, disciplinary practices, women's rights, legally protected rights of workers to free association, health and safety issues, and more.

We contract with numerous Vendor Partners, who in turn contract with hundreds of manufacturing facilities worldwide to procure merchandise sold in our stores. We do not own or operate the manufacturing facilities in which the merchandise we sell is produced, nor do we control the production capacity of such facilities. It is critically important to us that each Vendor Partner's manufacturing facility treats its workers fairly in compliance with local labor laws and all other terms of our Policy.

We have several processes to ensure that the merchandise we sell is produced in compliance with our Policy: selecting Vendor Partners who share our commitment to the principles contained in our Policy, monitoring our Vendor Partners' compliance efforts and exercising our ability to take corrective action when necessary. While the foundation of our efforts is our Policy, we believe compliance is a process that requires working closely with our Vendor Partners to identify and address challenges in a responsible manner that considers the needs and expectations of the affected Vendor Partner, its suppliers, employees and our shareholders. As a result, we closely monitor social compliance and encourage our Vendor Partners to continually enhance their processes and procedures to protect the health, safety and human rights of workers.

Our Policy includes the following requirements for our Vendor Partners and factories engaged in the manufacturing of merchandise procured for us:

LAWS AND REGULATIONS Vendor Partners and factories must operate in full compliance with all applicable local and national laws, rules and regulations pertaining to all aspects of factory operations in the jurisdiction in which they conduct business.

WAGES AND BENEFITS Workers must be paid wages and legally mandated benefits that comply with the higher of (a) any applicable law or (b) to match the prevailing local manufacturing or industry practices.

WORKING HOURS We expect Vendor Partners and factories to operate based on prevailing local work hours. Subject to the requirements of local law, a regularly scheduled work week of no more than 60 hours and one day off in every seven-day period is encouraged.

CHILD LABOR Use of child labor is strictly prohibited. "Child" is defined as a person who is younger than 15 (or 14 where the law of that country permits) or younger than the age for completing compulsory education in the country where such age is higher than 15.

PRISON LABOR/FORCED LABOR/SLAVERY/HUMAN TRAFFICKING Use of prison labor, bonded labor, indentured labor or forced labor in the manufacture or finishing of products we order is not permitted. "Forced labor" is defined as any work or service which is extracted from any person under the threat of penalty for its non-performance and for which the worker does not offer him/herself voluntarily and includes, without limitation, prison and slave labor or human trafficking for the purposes thereof.

DISCRIMINATION Employment (hiring, wages, benefits, advancement, termination and retirement) shall be based on the worker's ability and not on personal characteristics, such as gender, age, disability, sexual orientation, racial characteristics, cultural or religious beliefs or similar factors.

FREE ASSOCIATION All workers must be free to join organizations of their own choice and to bargain collectively.

DISCIPLINARY PRACTICES All workers must be treated with respect and dignity. We will not tolerate the use of corporal punishment; physical, sexual, psychological or verbal harassment or other forms of mental or physical coercion, abuse or intimidation.

ETHICAL STANDARDS Bribes, kickbacks or other similar unlawful or improper payments are strictly prohibited to be given to any person or entity to obtain or retain business.

ENVIRONMENTAL REQUIREMENTS We will only do business with Vendor Partners and factories that comply with all applicable government laws and regulations, international standards, U.S. regulations prohibiting the use of ozone-depleting chemicals (hydrochlorofluorocarbons) and the International Trade in Endangered Species of Wild Fauna and Flora, as listed in the United States Endangered Species Act of 1973.

COMMUNICATION Our Policy must be posted in the factories used to produce our private and exclusive branded merchandise in places that are readily accessible to workers, translated into the language of the workers and supervisors and our Policy must be communicated to all workers.

MONITORING AND COMPLIANCE We take affirmative measures to monitor compliance with our Policy and our Purchase Order Terms and Conditions. Such measures may include prescreening Vendor Partners and factories, and scheduled or random, announced and unannounced on-site inspections of factories by our representatives.

RECORD KEEPING All documentation necessary to demonstrate compliance with our Policy must be maintained in factories producing merchandise for us.

SUBCONTRACTING Vendor Partners may not utilize subcontractors for the production of our merchandise, or components thereof, without our prior written approval and only after the subcontractor has agreed to comply with our Policy.

CORRECTIVE ACTION If a Vendor Partner or factory is in violation of our Policy, we will try to work with the Vendor Partner and factory to remediate the violation, if possible.

COUNTRY EXCEPTIONS Vendor Partners will not produce merchandise for us in countries we consider to be denying basic human rights.

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EGREGIOUS POLICY VIOLATIONS

Our compliance philosophy is focused on continuous improvement; however, we have a zero-tolerance policy regarding egregious violations of our Policy. Egregious violations include:

  • Child labor
  • Prison labor, forced labor, slavery, human trafficking
  • Physical or sexual abuse
  • Non-payment of wages
  • Unauthorized subcontracting
  • Ethical standards: attempted bribery of social compliance or quality assurance auditors
  • Transshipment or altering/tampering with country-of-origin markings

If any of the above issues are identified, we immediately terminate our business relationship with the factory and do not accept merchandise produced under such conditions.

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CALIFORNIA TRANSPARENCY IN SUPPLY CHAINS ACT

Our Policy strictly prohibits the use of prison labor, bonded labor, indentured labor or forced labor in the manufacture or finishing of products we order, including, without limitation, prison and slave labor or human trafficking for the purposes thereof.

To enforce compliance with our Policy, we:

  1. Work with our Vendor Partners and agents to raise awareness of this issue.
  2. Require all Vendor Partners to certify that each facility used to produce merchandise we purchase will operate in compliance with all applicable laws and our Policy, including but not limited to, laws regarding slavery and human trafficking in the countries in which they do business.
  3. Provide training for relevant policy compliance management and team members regarding identification and mitigation of risk.
  4. Contract the services of independent, professional, third party social-compliance monitoring firms to perform both announced and unannounced factory audits.
  5. Enforce our zero-tolerance policy regarding forced labor, prison labor, slavery and human trafficking.

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SOCIAL COMPLIANCE MONITORING PROCESS

Our organizational structure supports the uniform and objective application of our social compliance program to all Vendor Partners. Dedicated policy compliance personnel are responsible for day-to-day duties and administration of the compliance program, and are independent of the Product Development and Merchandising departments responsible for development, sourcing and merchandising. As a result, day-to-day decisions regarding the social compliance status of potential factories, and those factories that are being used to produce merchandise for us, are made by employees not involved in actual purchase negotiation.

We expect our Vendor Partners to take all steps necessary to ensure compliance with our Policy in their manufacturing facilities that produce merchandise for us, whether the facility is operated by them or by one of their subcontractors. We require our Vendor Partners that produce private label and exclusive merchandise for us to identify all manufacturing facilities, domestic and foreign, that they plan to use to produce such merchandise and to provide us with written certification that each facility will operate in compliance with our Policy. Subcontractors that a Vendor Partner desires to use in the manufacturing process require our approval.

We recognize that publication of a statement of principles is insufficient to achieve compliance with these principles and that aggressive enforcement of our Policy is required. To achieve this goal, we actively monitor factories in which our merchandise is produced. We reserve the right to review all Vendor Partner facilities, including the use of unannounced on-site inspections of manufacturing facilities. Once deemed compliant with our Policy, factories are monitored periodically based on established risk level.

Risk assessment is based upon the following factors:

  • Social conditions in the geographic location of the factory
  • Factory management commitment toward social compliance
  • Vendor Partner historical performance across all factories they use to produce merchandise for us
  • Historical factory audit results
  • Open-source risk information
  • Potential issues reported via public media

We have retained the services of two professional, independent, third-party firms to monitor Vendor Partner compliance with our Policy. Our monitors have auditing professionals located in the territories in which the manufacturing facilities are located who are able to speak the language of workers and management and who have extensive experience with monitoring social compliance on behalf of international customers. Completion of our full audit program requires a two-day factory visit, while follow-up audits are completed in one day.

Upon arrival at a factory, our third-party social-compliance monitors conduct an opening meeting with facility management to review our Policy, discuss the monitoring process and request documentation required for review. The auditor immediately notifies us if factory management denies access to the facility. Our policy-compliance team researches the reason for the denied access to determine if the facility will receive another visit. If so, the policy compliance team schedules an unannounced visit. If factory management denies access to the auditor a second time, we terminate our business relationship with the factory.

Upon completion of the opening meeting, a factory tour is conducted and workers are randomly selected to be interviewed. Worker interviews are conducted in a private place and in the local language of the workers. The content of worker interviews is kept strictly confidential.

During the course of each facility visit, the monitor documents all deficiencies related to our Policy. Upon completion of each visit, the monitor summarizes and discusses each deficiency with factory management to facilitate immediate corrective actions and sends an audit report to our policy compliance team. Our compliance team reviews factory monitoring reports and works with our Vendor Partners to implement corrective actions.

If noncompliance with our Policy is identified, we take appropriate action, which, depending on the severity of the deviation, ranges from working with our Vendor Partner to ensure adequate steps are taken to address deficiencies, to canceling affected orders, to terminating our relationship with our Vendor Partner. We require our Vendor Partners to adopt a corrective action plan whenever possible. Follow-up evaluations are completed to verify subsequent adherence to our Policy. Whenever possible we attempt to bring noncompliant facilities into compliance rather than terminate our business relationship.

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COMPLIANCE PROGRAM PERFORMANCE STATISTICS

Fiscal 2012 vs. Fiscal 2011


Fiscal Year 2013 Fiscal Year 2012
# Monitoring Visits
3,370 3,770
# of Facilities Visited
1,933 2,129
# Compliant Facilities
1,429 1,554
# Not Compliant Facilities
183 230
# Inactive Facilities
46 53
# Still In Monitoring Process
275 292
# Factory Visits Not Announced
1,947 2,269

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EDUCATION AND TRAINING

We provide training to Vendor Partners on our Policy and our expectation of compliance. We regularly communicate with our Vendor Partners on compliance issues. In 2013, we conducted numerous individual training sessions for Vendor Partners to promote understanding and compliance with our Policy. In this way, we clearly communicated our expectations and, in turn, our Vendor Partners had the opportunity to explain their practical challenges to us.

The following topics were reviewed during training sessions:

  • Expectations for Suppliers
  • Policy Definitions
  • Best Practices
  • Site Verification Methods
  • Indicators of noncompliance
  • Reporting of facility assessments
  • Remediation methods
  • Compliance improvement
  • Sustainability

In addition, we strongly encourage our Vendor Partners to develop and/or enhance their own internal social compliance functions to raise awareness and to sustain performance improvements. We emphasize open, ongoing Vendor Partner communication.

We also conduct quarterly internal training sessions for Product Development employees regarding our Policy requirements. We provide relevant Kohl's Associates, who have direct responsibility for supply chain management, training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chain.

ALLIANCE FOR BANGLADESH WORKER SAFETY

We are a founding member of the Bangladesh Alliance for Worker Safety, which formed in July 2013. The Alliance includes more than 25 North American apparel industry brands and buyers in partnership with multiple stakeholders that are committed to improving fire and building safety in Bangladesh. The Alliance is focused on protecting and empowering workers and elevating fire and building safety in Bangladeshi garment factories.

The Alliance has committed to:

  • Develop standardized fire and building safety standards and a standardized inspection protocol to be implemented in all factories that members source from in Bangladesh.
  • Empower workers through Worker Participation Committees, and provide fire and building safety training to workers and factory management.
  • Be transparent about fire and building safety inspections and share progress on the implementation of corrective action plans.
  • Help ensure appropriate levels of funding and support exist to drive results.

BETTER WORK VIETNAM

We participate in the Better Work Vietnam (BWV) program, which is an International Labour Organization program focused on strengthening labor standards in export garment industries in Vietnam. Our reliance upon BWV factory-monitoring results in Vietnam, in lieu of performing our own scheduled audits, helps reduce audit fatigue and factory monitoring costs. This provides factory management with more time to focus on corrective action and sustainable, continuous improvement.

PRODUCT SAFETY

Delivering quality products is our business. In order to ensure we are living up to our deliverables, product integrity considerations are built into the product-development process. During the product- development process, we check to ensure products developed are safe and meet applicable federal and state mandates.

Product compliance and safety are the driving force of our Product Integrity department. The department works with manufacturers, vendors and agents to ensure all private and exclusive brand products are subjected to rigorous testing prior to shipment. Testing is conducted at independent third-party laboratories approved by us. Depending on the end product, testing can range from checking for mechanical hazards, choking hazards or chemical hazards to flammability of fabrics.

Our Product Integrity department works continually to remain current regarding changes in consumer product regulations. During the past year, this department has been very closely monitoring product compliance and safety developments at the federal, state and local levels. The department is responsible to ensure that such changes are incorporated into our product- development culture. Additionally, we have taken proactive steps in voluntarily adopting product safety programs in the best interests of our customers.

The goal of our Product Integrity department is to ensure that the Product Development team adopts and embraces changes made to our Corporate Testing Program. The Product Integrity department understands the importance of training, awareness and communication and is responsible for training our internal staff, agents and vendors on topics ranging from Product Safety and Children's Sleepwear to Footwear Testing. The goal is to deliver a safe, quality product to our stores.

CONFLICT MINERALS RULE PURSUANT TO THE DODD-FRANK ACT

We expect all Vendor Partners to ensure merchandise sold to us is free of any minerals designated as "conflict minerals" that finance conflict in the Democratic Republic of the Congo or an adjoining country. We have been actively working to put in place policies, due diligence frameworks and management systems to verify our Vendor Partners' compliance with this expectation and to enable us to comply with the reporting requirements of the Conflict Minerals Rule. We have engaged an outside firm with specialized expertise and experience in mapping and tracing supply chains to support our conflict minerals compliance program. We expect Vendor Partners to establish their own due diligence programs to ensure conflict-free supply chains and take any other steps necessary to abide by the contractual commitments provided to us.

CLEAN DIAMOND TRADE ACT

We require all diamond jewelry suppliers to ensure that the merchandise they sell to us meets the requirements of the Clean Diamond Trade Act and the Kimberly Process Certification and ensure merchandise sold to us does not contain diamonds involved in funding conflict.

UZBEKISTAN COTTON

We do not knowingly carry products that use cotton originating from any country that condones the use of child and/or forced labor. We do not source any private or exclusive brand products from Uzbekistan and, to the best of our knowledge, cotton from Uzbekistan is not used in goods produced for us in other countries. Until we are convinced that forced child labor is not being used to produce cotton in Uzbekistan, we specifically prohibit the use of Uzbekistan cotton in the manufacture of merchandise intended for sale in our stores.

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CORPORATE GOVERNANCE

We are committed to responsible corporate citizenship and integrate social, economic and environmental considerations into our purchasing and risk-management processes. Acting with integrity is a company value; therefore, we incorporate socially responsible principles into our daily business activities not only for the present, but also for the future.

SOCIAL RESPONSIBILITY COMMITTEE

Implementation of our Policy is subject to the review and guidance of our Social Responsibility Committee. The Committee includes corporate senior leadership, senior executives responsible for business operations and executives directly responsible for the day-to-day efforts of our social compliance program. Senior executives from multiple areas of our business, including Product Development, Merchandising, Planning and Allocation, Sourcing, Human Resources, Legal, Risk Management, Compliance, Finance and Sustainability convene at least quarterly to discuss current social responsibility topics, historical performance, emerging trends and opportunities.

Our Social Responsibility Committee guides the overall direction, assessment and continuous improvement of our compliance program. The Committee ensures a uniform focus and consistent direction to our social compliance program. In addition, the Audit Committee of our Board of Directors reviews our Policy and social compliance program efforts and results on an annual basis.

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