Maybe Kohl's (NYSE:KSS) wasn't crazy after all. Or maybe it was crazy like a fox. In any event, the department store's decision to partner with Amazon.com (NASDAQ:AMZN) and sell the e-commerce giant's products as well as accept its returns seems to be paying off.
Rather than killing Kohl's, as has happened so many times when Amazon has partnered with a retailer, this relationship seems to be doing what it was intended to do: drive more traffic into Kohl's stores.
Deal with the devil
Last September, Kohl's launched its "Amazon Smart Home Experience at Kohl's," 1,000-square-foot boutiques inside 10 Kohl's stores that would showcase Amazon's Alexa-enabled smart-home products.
It followed that up with a second agreement to accept Amazon's product returns. Whatever you bought on Amazon.com, you could then go into a select Kohl's store and return the items to the e-commerce retailer. According to an analysis conducted by Gordon Haskett Research Advisors, the partnership is working.
Using geolocation data collected from cellphones, the firm studied traffic levels at 13 Kohl's stores in the Chicago area -- five of which are participating in the returns program -- and found that store traffic was 8.5% higher at stores in the program than at those stores that were not. Moreover, 56% of those visiting the stores were new Kohl's shoppers, or at least hadn't been in a Kohl's store since last June.
Perhaps more importantly, customers aren't just dropping off the package and heading back out the door. The analysis shows they're spending extra time in the store.
Gordon Haskett analyst Chuck Grom was quoted by Bloomberg as saying, "For Kohl's it seems like a no-brainer."
While Kohl's itself hasn't offered up specifics on its experience with the programs, retiring CEO Kevin Mansell did note during the retailer's fourth-quarter earnings conference call with analysts in March that the experience had been positive thus far and Kohl's had discussed with Amazon how and where it could expand the program.
Coupled with the Gordon Haskett study, it would seem that those of us that thought Kohl's was dooming itself by partnering with Amazon were wrong.
Better than it looks?
Although the retailer seems happy with the pairing so far, there's nothing to indicate either program is leading to more sales. Higher traffic doesn't mean consumers are spending more money in the stores, even if it seems to encourage them to spend more time there. At most, it indicates they may be looking around to see what Kohl's has to offer.
Even so, it's possible there's more going on here than just Amazon returns, as the amount of excess traffic being generated at these participating stores seems exceptionally high. Sure, e-commerce returns are typically higher than those for brick-and-mortar, with the Reverse Logistics Association indicating they typically range between 15% and 30%, or three times more than for purchases made at a store. But it seems odd that so many people are running to Kohl's to return their Amazon goods, especially since most of them are new to the retailer.
Five select stores offering return opportunities is a far less convenient option than the numerous UPS locations in the Chicago area where you can return your package. And Amazon has even rolled out a package-less return program where you can keep an item you bought but are unhappy with but still get a refund, a wrinkle that could impact whatever success Kohl's has experienced with its partnership.
Ultimately, as Mansell repeatedly said on the conference call, the partnership is simply a play on traffic -- and the Gordon Haskett analysis suggests it may be working. But since the quality of this traffic is unclear, it remains to be seen whether accepting Amazon returns can have a material impact on Kohl's business.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.