US Insights

Amazon @ Kohl's: Trojan Horse or Friends with Benefits?

Tiffany Hogan

Senior Analyst

Retail 10.02.2017 / 12:00

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Both retailers could benefit from each other’s assets.

Food and fashion. These are the two areas Amazon has set out to conquer next. With this summer’s acquisition of Whole Foods, many have turned their eyes to fashion and department stores to predict Amazon’s next big purchase. Could it possibly stem from Amazon’s new partnership with Kohl’s?

What Is the Deal?

Kohl’s first announced it would partner with Amazon to open connected home showrooms in 10 stores in the Los Angeles and Chicago markets. These 1,000 sq. ft. showrooms will be staffed by Amazon associates, and the items, including the growing family of Echo devices and Kindles, will be sold through Amazon. Billed as the Amazon Smart Home Experience, associates will also peddle Amazon Home Services, giving a physical home to a burgeoning part of the Amazon ecosystem.

Subsequently, it was announced that 82 Kohl’s locations in the same two markets will begin processing Amazon returns on eligible items. Shoppers using Kohl’s to manage their Amazon returns will have dedicated parking spaces, presumably separate from those designated for Kohl’s shoppers picking up orders in stores. 

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At face value, it seems that Amazon is benefiting from Kohl’s convenient locations while the latter is doing the dirty work of processing Amazon returns. But the partnership has the potential to swing both ways, with both retailers benefitting from each other’s assets and proficiencies.

What Amazon Can Gain from Kohl’s

The simple answer is physical stores, of which Kohl’s has more than 1,000. While physical stores have been a dead weight for most department stores in a tepid apparel spending climate, Kohl’s has been actively working to make its stores more efficient, streamlining inventory and consolidating square footage in its “Standard to Small” store program. This strategy conveniently frees up space that can be easily rented to a third-party partner such as Amazon. It is this space that the retailer is likely using to create both the Connected Home Experience and the space that would be needed to process Amazon returns.

What Kohl’s Can Gain from Amazon

The simple answer here is traffic. These partnerships result in almost no direct revenue for Kohl’s, aside from leased space, but both could be major traffic drivers. Though Amazon does not report return rates, it is safe to say that for certain categories across retailers, such as apparel, online return rates are fairly high. Over the past 12 months, Kantar Retail ShopperScape® data shows that 30% of all Amazon shoppers also have shopped Kohl’s, but 44% of Kohl’s shoppers are Prime members (compared with 38% of all shoppers), so the pairing may draw a different set of shoppers of Kohl’s.

Amazon @ Kohl’s: A Trojan Horse, or Friends with Benefits?

Kohl’s and Amazon seem to be finding the missing pieces of their own puzzles in each other. Amazon wants access to stores, physical space, and face-to-face contact with shoppers. Kohl’s needs those same shoppers to come into its stores and make more purchases. But is this the beginning of a beautiful friendship or a step toward a surprise (or perhaps planned?) merger? In my opinion, the chances of this being a one-off, limited-time partnership are slim. Now that the relationship has been initiated, next steps to deepen the partnership might come more quickly into focus:

  • Kohl’s is already focused on streamlining operationally and could benefit from Amazon’s logistical excellence.
  • Kohl’s strong loyalty program, Yes2You, and Prime could combine to make a compelling offer for shoppers of both retailers.
  • Amazon’s significant investments in its own fashion labels point to the potential for physical locations in some form. It’s not a stretch to envision Amazon joining the ranks of other initially online-only apparel retailers (e.g., Bonobos, ModCloth, Everlane) that are now showcasing their brands in bricks-and-mortar locations.
  • Most of Amazon’s new brands sit comfortably within the Kohl’s price range and target audience parameters. Per ShopperScape®, Kohl’s shoppers who are also Amazon shoppers are more likely to be aware of key Amazon fashion/apparel/shoe brands than are Amazon shoppers in general (24 % to 20%, respectively).

While Amazon is clearly on the acquisition hunt in the apparel space, the jury is still out on whether it will take on Kohl’s 1,000+ stores and position in a challenged market, or go the “Walmart route” of acquiring smaller, niche brands. This will depend on Amazon’s main goal in the acquisition:  fashion or function. Regardless, we expect to see the Kohl’s-Amazon relationship evolve quickly as showrooms open and the selected 82 stores begin to accept returns.

Source: Kantar Retail

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