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What's Up With All These Retailers Partnering With

By Rich Duprey – May 22, 2018 at 10:45AM

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Suddenly the destroyer of retail is the one everyone wants to join with.

Although (AMZN 3.07%) is supposed to be the death of today's retailer, you might not realize it from looking at all the companies lining up to partner with it.

The announcement by Sears Holdings (SHLDQ) recently that it was joining forces with the e-commerce site to help it sell tires is only the latest example of a retailer aligning itself with what's supposed to be its sworn enemy.

This isn't even the first time Sears has paired itself with Amazon, agreeing last year to sell its Kenmore brand directly on the site. This put it on par with retailers like Best Buy, Calvin Klein, Chico's FAS, Kohl's (KSS 3.10%), and Nike in seeking to ride the e-tailer's coattails to higher sales.

Boxes in Amazon's fulfillment center

Image source:

The bill will come due

It remains a risky strategy. Borders, Toys R Us, and RadioShack all had a relationship with Amazon at one time before going under. And though the online site was not the proximate cause of their subsequent bankruptcy, its ability to lure away customers may very well have hastened their demise.

Retailers apparently now think they can dance with the devil and not pay a price. Recently, a study of traffic patterns indicated Kohl's may be seeing a bump in traffic as a result of its accepting package returns for purchases made on Amazon, and management says it's looking for ways to expand the program.

And because Amazon is expected to become the largest apparel retailer in the country, overtaking Macy's for the top spot, many fashion retailers apparently believe they should align themselves with the site rather than fight it. Chico's and Nike have both opened storefronts on Amazon, and Calvin Klein partnered with the e-commerce leader to open pop-up stores while exclusively selling underwear on Amazon during the holidays instead of through department stores, as it has traditionally done.

A third way?

It's not that it can't be done. Unlike Amazon, Alibaba (BABA 0.89%) is seen in China as a helpful partner. It reportedly signed up over a half-billion small retailers with its store management app to help them stock items that are popular online during the e-commerce site's massive Singles Day one-day sale last year.

The difference is that Amazon and Alibaba are not exactly analogous. Alibaba offers third-party sellers a platform to sell their goods, which makes it more like eBay than Amazon. While Amazon also has a third-party seller marketplace, it also sells its own wares, making it a direct competitor to retailers. And when retailers partner with Amazon, the site also learns about their customers' shopping habits, which Amazon can then use to benefit its own offerings.

Even though consumers are shopping online now more than ever before, Amazon recognizes that brick-and-mortar stores still have advantages. And by teaming up with these retailers, it gains insights into last-mile delivery of products and services.

The camel's nose under the tent

The deal with Sears to have the ailing retailer install tires that Amazon sells online gives it greater understanding about whether an online auto-parts business can be viable, just like the prior deal to sell Kenmore appliances will help Amazon grow its appliance business.

I'm also not convinced Kohl's is actually reaping the rewards touted from accepting Amazon returns, even as it's clear that Amazon benefits from giving its customers another path to buy more stuff on its site.

That was part of the problem RadioShack and Staples discovered when they put Amazon Lockers in their stores. Thinking they would increase store traffic, both quickly realized they were simply giving their competitor another advantage over them. Shopping malls are now making the same mistake.

And that's the problem with retailers partnering with Amazon. They're giving their customers a reason not to visit their stores or their websites while helping to turn Amazon into the go-to place to shop. It ultimately undermines their own business.

Retail is making a mistake by inviting their enemy into their camp. Maybe they're simply following the motto of keeping your friends close and your enemies closer, or they just like playing with fire. But brick-and-mortar retailers are going to discover that the burned hand really does learn best.

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 and Nike. The Motley Fool recommends eBay. The Motley Fool has a disclosure policy.

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Stocks Mentioned, Inc. Stock Quote, Inc.
$116.47 (3.07%) $3.47
Macy's, Inc. Stock Quote
Macy's, Inc.
$16.23 (3.54%) $0.56
Sears Holdings Corporation Stock Quote
Sears Holdings Corporation
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
$64.11 (1.22%) $0.77
Kohl's Corporation Stock Quote
Kohl's Corporation
$25.93 (3.10%) $0.78
eBay Inc. Stock Quote
eBay Inc.
$37.52 (1.93%) $0.71
Chico's FAS, Inc. Stock Quote
Chico's FAS, Inc.
$4.74 (-2.17%) $0.10
NIKE, Inc. Stock Quote
NIKE, Inc.
$85.94 (3.39%) $2.82
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
$80.70 (0.89%) $0.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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