There's still no data from Kohl's (NYSE:KSS) to back up whether its plan to accept package returns from Amazon.com (NASDAQ:AMZN) is working, but the retailer is expanding the number of stores that will accept returns for purchases made on the e-commerce site, which suggests it's doing better than critics thought.

Although many were skeptical of the decision for Kohl's to partner with Amazon because of the e-commerce giant's habit of undermining the retailers it partners with, this relationship seems to be working out better than most. While I'm still not convinced the Amazon partnership is driving much traffic to Kohl's, it doesn't seem to be hurting the retailer either.

Rich Smith taping a package for shipping

Image source: Getty Images.

Many happy returns

A year ago, the two companies announced that customers who bought merchandise on Amazon could return it hassle-free through Kohl's, with the department store boxing, wrapping, and shipping the items at no cost to the customer. Kohl's even reserves parking spaces close to the door for Amazon returns customers.

Billed as a traffic-driving play, Kohl's hoped customers who came in to make a return would stay and shop its racks. Data from Gordon Haskett Research Advisors indicates it is having that effect.

Of 13 Kohl's stores in the Chicago area, traffic at the five stores participating in the returns program was 8.5% higher. Furthermore, 56% of those visiting the stores were new Kohl's shoppers, or at least hadn't been to a Kohl's store in the three months before the program's start.

Now that Kohl's is expanding the pilot into Wisconsin and adding nearly two dozen stores, it would appear the partnership is paying off.

CEO Michelle Gass told analysts on the retailer's second-quarter earnings conference call: "It's a big deal for us. It's a big deal for them. But I think, overarching, what both parties are most pleased about is what a great customer experience we're creating for our customers and theirs."

The partnership is still undergoing a review, which is the purpose of a pilot program, and Gass notes that Amazon has a say, too, in whether it continues. But both sides are reportedly happy with how it's progressing.

A rising tide

However, despite the Gordon Haskett data, there's still the question of just how much traffic is being driven to the stores by the program. As I've noted elsewhere, there are many other locations for a person to drop off an Amazon return, including a UPS or FedEx facility, or the local post office, which ought to make them a more convenient option, even if Kohl's handles all the packing and shipping.

Kohl's has been engineering a turnaround that may have more to do with increased traffic than just package returns. The company has decreased store size, increased marketing around national brands, and increased the amount of fast-fashion styles available.

Comparable-store sales, which had fallen across all of 2016, began to move up last year, and have grown significantly stronger since. In the second quarter, comps were up 3.6%. Many retailers are experiencing similar growth, suggesting there's more to it than package returns. An improved economy, low unemployment, rising wages, and tax reform that saw businesses share the benefits with their employees are likely playing a big role in the rebound.

Many irons in the fire

Kohl's also has several other initiatives under way, including a second with Amazon that created a store-in-store boutique featuring Alexa-enabled home products, and a partnership with discount supermarket chain Aldi which will open a grocery store inside 10 Kohl's stores. Gass didn't provide any update on either of those programs.

The department store admits that it is going to run into some headwinds in the back half of the year as it comes up against stronger comps numbers, but it raised its earnings guidance for the full year, increasing both the bottom and top ends.  So Kohl's is performing much better than many analysts thought it would, particularly among those who believed it was a death knell to partner with Amazon.com.

While it's still possible the trial programs don't pan out, Kohl's is giving the impression that there is much more upside than downside, and it remains a retailer to watch.

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 recommends FedEx. The Motley Fool has a disclosure policy.