Kohl's (KSS 2.87%) and Amazon.com (AMZN 1.17%) are becoming surprisingly close.
The department store chain announced earlier this month that it would host ten Amazon "store-in-stores" at locations in the Los Angeles and Chicago areas. The shops will allow customers to try out Amazon devices like the Echo and Fire TV stick, and talk to Amazon salespeople about the company's products.
Less than two weeks later, Kohl's announced another step in its partnership with Amazon, saying that 82 stores also in the LA and Chicago areas would begin accepting Amazon returns. Kohl's employees will pack and ship the Amazon items at no charge to Kohl's customers.
Image source: Getty Images.
It was a surprising move for Kohl's since Amazon is one of its biggest competitors, and it even prompted some speculation that Amazon would seek to acquire it. The department store sector has been gutted by Amazon, and over the last decade (and more so than any other company), the e-commerce giant has been responsible for the rash of bankruptcies in the industry, of which Toys "R" Us was the latest.
However, Kohl's isn't the only department store chain playing nice with Amazon. Over the summer, Sears Holdings (SHLD +0.00%) agreed to sell its Kenmore appliances on Amazon and said it would also manufacture Alexa-enabled appliances. CEO Eddie Lampert explained that selling on Amazon would expand the distribution and availability of Kenmore products, and that voice activation was a natural feature to add for Kenmore products like air conditioners.
Both Sears and Kohl's shares gained on the news of the Amazon partnerships, but the investor response to the Sears' announcement made more sense. The parent of Sears and Kmart appears to be on its last legs as a business as same-store sales continue to plunge, and it hasn't posted an operating profit since 2010. Teaming up with Amazon could help the business survive.
Given that, allowing Amazon returns at its store could make sense.
If you can't beat 'em...
After asserting its dominance over the online world, Amazon is increasingly reaching into the brick-and-mortar world. The company has opened 11 Amazon Books stores, a handful of college stores, and of course, it closed on its acquisition of Whole Foods just weeks ago.
Amazon is realizing that it's helpful to interact with customers in a physical space -- to sell its gadgets, to facilitate deliveries and returns, and for products like produce that aren't so suitable to e-commerce.
It's clear why a company like Sears, which has a huge real estate portfolio, would want a piece of Amazon's magic, but Sears isn't Kohl's.
Many of Sears' stores are in disrepair due to a continued lack of investment, and both Sears and Kmart are ranked especially low in brand perception and purchase consideration.
Kohl's, on the other hand, has fared better than its department store rivals. It has resisted the massive store closings that Macy's, J.C. Penney, and Sears have all announced this year and has managed to grow profits despite modest declines in traffic.
Between the two chains, Amazon would rather send its customers to Kohl's, which has cleaner stores and a much more stable business.
Sears still brings in about as much revenue as Kohl's, nearly $20 billion over the last year, and as of this spring, there were about 1,300 Sears and Kmart locations, compared to about 1,100 Kohl's locations.
The returns agreement with Kohl's seems to be a test for now as it only includes 82 stores; however, Kohl's is clearly the better brick-and-mortar partner for Amazon thanks to its stronger reputation and stability as a business. Sears may be forced to declare bankruptcy within the next year or two as the company said in March that its status as a "going concern" was in doubt.
With traffic and sales plunging, it's clear why Sears would look to partner with Amazon, but Amazon would be reluctant to tarnish its brand by associating with Sears' decrepit stores. Kohl's is the better brick-and-mortar partner of the two.
