Kohl's (NYSE:KSS) latest agreement with Amazon.com (NASDAQ:AMZN) looks like a modern-day version of the classic play Faust, where the title character signs over his soul to the devil in exchange for a few years of decadent joy.
First Kohl's agreed to let Amazon set up shop in its stores to sell products customers can eventually use to bypass shopping at Kohl's altogether, now it's agreed to accept product returns at its stores for items purchased on the e-commerce site. For the hope that the contract between the two will generate a little more customer traffic and a bit more sales, Kohl's has entered into a Faustian bargain with Amazon that can only result in it losing both its soul and sales in the long run.
A free pass
There's no real good that can come of this deal. Beginning next month 82 Kohl's stores in Los Angeles and Chicago will offer free returns for Amazon customers. Products that were purchased online can be brought into a Kohl's store and the retailer will box and wrap them up at no cost and ship them back to Amazon.
Worse, it is even reserving the best parking spots in the lot for Amazon returns customers. It's telling its own customers they have to trudge through potentially packed parking lots to shop at the store, but customers dropping off Amazon orders can drive up to the spaces in front of the doors and park.
Seriously, what is Kohl's thinking by agreeing to this?
They're billing it as a foot-traffic play, but I'm not sold on the idea that Amazon e-shoppers are suddenly going to be interested in browsing the racks at Kohl's after they drop off items.
A long string of failed partnerships
Just as I explained when discussing the retailer's decision to let Amazon open 1,000 square foot in-store boutiques to sell connected home products like the Echo -- which customers can then use to order merchandise directly from Amazon and bypass Kohl's altogether -- Kohl's is simply helping its arch nemesis sell more goods at its own expense.
Almost every time Amazon has entered into a deal with a bricks-and-mortar retailer, it is only Amazon.com that has benefited. Whether it was Staples and Radio Shack installing Amazon Lockers in its stores in a similar bid to boost customer traffic and sales, or Target letting Amazon run its e-commerce site, the results have been devastating and caused the retailers to back out of the agreements.
The terms of the agreement between Kohl's and Amazon weren't revealed, but it's hard to imagine this playing out any differently than it has for retailers in the past.
A dance with the devil
Wall Street actually liked the news, boosting Kohl's stock and having analysts parrot Kohl's spin that it was "leveraging" its stores and omnichannel capabilities.
Partnerships between e-commerce and physical retailers can lead to benefits for both -- think Amazon buying Whole Foods or Wal-Mart investing in Chinese e-commerce leader JD.com. But the difference in those examples is they involved investment stakes on top of the strategic partnership.
Amazon has no long-term stake in the success of Kohl's, they're competing for the same consumer dollars.
Apparel makes up 63% of Kohl's $18.7 billion in total 2016 sales, or about $11.8 billion. Amazon.com is expected to surpass Macy's (NYSE:M) this year as the biggest apparel retailer with sales hitting $22 billion. Add in the significant investments it's made in becoming a powerhouse fashion retailer, and Kohl's is basically enabling its enemy to undermine its business.
The only real benefit Kohl's can hope to attain from this deal is to prove its worth as an acquisition target.
The partnership could show Amazon the utility of having a ready-made national footprint of 1,100 stores and make Kohl's worth scooping up in the eyes of CEO Jeff Bezos.
Otherwise, dancing with Mephisto as Kohl's is doing doesn't make any sense.