Kohl's (KSS +4.67%), are you really sure you want to do this? Retailers never seem to learn: Letting Amazon.com (AMZN +2.40%) into your stores is not going to end well. It's not a case of keeping your friends close and your enemies even closer. It's letting the fox guard the henhouse.
Kohl's is the latest brick-and-mortar retailer to welcome the e-commerce king into its stores by agreeing to sell Amazon hardware on the theory that it will drive traffic and boost sales. What will probably happen is that the e-tail king will further demolish its competition.
Image source: Amazon.com.
A foot in the door
Kohl's is clearing out a 1,000-square-foot swath of floor space in 10 stores to dedicate to the "Amazon Smart Home Experience," a store-in-store boutique where customers can shop for Amazon devices, accessories, and smart-home devices, including the Amazon Echo, Echo Dot, Amazon Fire TV, and Fire tablets. (A typical Kohl's is about 85,000 square feet.) The retailer even touts how consumers will be able to "touch, feel, and interact with Amazon devices before they buy."
This is not good, at least not for Kohl's. To paraphrase Vladimir Lenin, the retailer will be selling to its customers the rope with which Amazon.com will hang it.
Kohl's isn't the first retailer to think partnering with Amazon would drive store traffic and boost sales. It seems to be operating under the assumption that if customers are coming in to buy an Echo, maybe they'll spend a little more time and also buy a women's Sonoma top or a pair of Croft & Barrow shoes. It sounds good in theory, but it won't work out that way.
Image source: Amazon.com.
A painful lesson
Just ask Staples (SPLS +0.00%) and Radio Shack, which also invited Amazon into their stores. They figured adding Amazon Lockers would bring people in, with the thought that while they were there picking up packages of stuff they bought on Amazon, they might also splurge on a ream of paper or an extra diode.
It didn't quite work out like that, and the companies quickly killed the experiment after realizing all they were doing was boosting sales for Amazon. Now shopping malls are buying into the premise, too, and welcoming in Amazon Lockers. There may be more sense in that thinking than in having individual retailers install them, since just finding a parking spot and having to walk into a mall ensures you will want to spend more than two minutes picking up a package. But the concept still amounts to enabling the rival that is killing off your tenants.
Image source: Amazon.com.
Opening the floodgates
And that's what Kohl's is essentially doing to itself. It's agreeing to sell Amazon products that can then be used to buy more Amazon products. The voice-activated Echo, for example, will spring to action and purchase clothes off the Amazon site if you ask nicely, or not nicely; it's just a machine.
Amazon.com is poised to overtake Macy's this year as the biggest apparel retailer. Its apparel sales last year are estimated to have exceeded $22 billion, and this summer it launched a new service called Prime Wardrobe that lets customers try on clothing before buying. It also offers a new "athleisure" line of clothes and recently released a camera style assistant called Echo Look that lets you photograph yourself wearing different outfits and then connects with a "style assistant" that learns what looks best on you over time.
Sure, Kohl's might gain some extra sales in the short term, but it's ultimately damaging its own long-term health, and the department store chain will come to regret embracing its enemy.
Don't forget to check out Fool Jeremy Bowman's take on Kohl's deal to process Amazon returns.
