Regardless of what side of the fence you may be on, it’s virtually impossible not to notice the major shift that has occurred in the retail sector with the advent of digital sales. Many consumers now find it easy and convenient to order items directly from the web, saving a trip to a brick-and-mortar location. This revolutionary shift, led by online retailers such as Amazon, has raised many questions for retailers that have typically relied on a traditional brick-and-mortar approach. As these retailers struggle to develop a strategy to become relevant in the ever-shifting digital marketplace, some are taking a more radical approach.
In 2017, Kohl’s was one of these companies. It was not doing poorly by any standards. It had a strong customer loyalty program, effective infrastructure and inventory management, and prime locations that still attracted a good number of customers. However, the company had concerns around its lack of growth.
To fix this problem, Kohl’s developed a revolutionary solution. It would partner with the very company that had caused many of its concerns: Amazon. Michelle Gass, the current CEO of Kohl’s, saw an opportunity when she was Chief Merchandising and Customer Officer. She engineered a bold plan that would become a test case for old-school retailers’ partnerships with Amazon.
In October of 2017, Kohls began accepting free returns of Amazon products. This means customers can walk into select Kohl’s stores and return something they bought on Amazon, even without the original packaging and box. Kohl’s then uses its own resources to package the product and its logistics infrastructure to ship it back to Amazon.
“I think that the most important thing that we’re seeing is how excited our customers and the Amazon customers are about this service,” says Gass. “It’s really unique. It takes a lot of the hassle out of returning items.”
A hundred stores currently participate in the Amazon return program. In addition, Kohl’s now sells select Amazon products—such as the Echo line of voice-activated virtual assistants and Kindle readers—in more than 200 stores.
The company realized that while it was still getting a good volume of customers into brick-and-mortar locations, it was failing to reach a younger audience. It therefore implemented the Amazon-partnered return program with the hope of getting a younger generation of customers into stores.
The program worked. Analysts found stores that participated in the Amazon return program averaged 13.5 percent higher traffic than stores that didn’t. This was the first partnership of its kind, and it left Kohl’s vulnerable to criticism that the department store was supporting Amazon’s brick-and-mortar ambitions.
“Establishing Amazon shops inside Kohl’s could be considered wheeling a Trojan Horse inside,” says David Katz, Chief Marketing Officer of Randa Accessories, one of Kohl’s largest clothing suppliers. The arrangement carried several risks for Kohl’s, including the possibility of higher costs and sales losses. Some critics argued store workers would become overwhelmed by dealing with Amazon returns, and that Kohl’s shipping costs would spiral out of control.
Katz adds, however, that “Michelle and her senior management team are not mired in legacy department store strategies and tactics. You can’t navigate tomorrow’s landscape with yesterday’s maps.”
Analysts believe the two companies could go further, and Kohl’s could one day bring new Amazon concepts to its stores, such as Amazon Go, Amazon Books, or Amazon 4-Star. Kohl’s could even lease out store space to Whole Foods. Kohl’s is experimenting with shrinking the size of some stores and joining with Aldi and Planet Fitness to open up several supermarkets and gyms next to Kohl’s.
“Kohl’s has extra space and Amazon has extra physical ambitions,” say Oliver Chen, Retail Analyst at Cowen. Analysts like Chen believe the future of retail lies in these digital-facing partnerships. The Amazon problem isn’t going away anytime soon, and it looks like Kohl’s has found a way to successfully embrace the problem rather than fight it.