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Kohl’s (KSS): Amazon’s Latest Bedfellow
Posted on October 30, 2017 by Danielle Bilbruck

Google who? Not satisfied merely being a household name, or having created a world where most of us balk at anything that takes more than two days to ship, Amazon is at it again. Striking while the iron is hot, the retail monolith is perhaps feeling emboldened by their recent roll-out of Prime Now, an acquisition of Whole Foods Market, and an announcement about a new headquarters location search that has many cities falling all over themselves to appease the king on his visit. Is that why they’ve collected a new (and admittedly curious) bedfellow in Kohl’s Corporation (KSS – safety score 83)?

At first glance, this seems like an odd and remarkably risky move for the floundering brick-and-mortar retailer: striking a deal with the brand literally taking down the brick-and-mortar industry could mean being party to one’s own destruction, or it could mean having a built-in safeguard. Right now, Kohl’s is set to open Amazon “store-in-store” experiences in 10 of their locations, offering Amazon the opportunity to sell their branded products like the Kindle and Echo inside the brick-and-mortar store. Additionally, Kohl’s will begin accepting Amazon returns in 82 of their locations in Los Angeles and Chicago.

But…but why? Here are our burning questions regarding this new partnership:

  1. Will Amazon end up stealing Kohl’s customers? At first glance, this seems likely. Rich Duprey at the Motley Fool points out that, for customers buying an Amazon Echo in a Kohl’s store, it will become vastly more efficient at home to simply order products you need with a quick verbal request. Why make a trip to Kohl’s when you can tell Alexa in your living room that you need a new Keurig? Duprey notes several retailers who have suffered from an Amazon partnership that left their own sales stagnant while padding the checkbook of the e-commerce giant. But will it matter? Kohl’s Corporation has seen a sizable downturn in stock since January, and Amazon is clearly not going away anytime soon. Does this feel like their only option to breathe life back into the stores, albeit a short-term attempt?
  2. What’s in it for Kohl’s? It remains to be seen if Kohl’s is benefiting as a landlord-of-sorts to these in-store smart-home shops, whether in rent, kickbacks, or sales commissions. If they are, one would hope that it would be enough of a return to not only offset the potential loss in customer revenue, but also provide a profit from the new (and possibly dicey) partnership. But what if there was more? When asked about a possible acquisition by the e-commerce giant, new Kohl’s CEO Michelle Gass offers only an “I don’t think so.” Business Insider reports that “traders are taking no chances,” and it seems that would be a wise move; “I don’t think so” doesn’t sound particularly steadfast from the incoming executive, and if the new union appears to be working in Amazon’s favor, it’s likely they would entertain a purchase offer. If Kohl’s is seeing even marginal benefits from the union, they might be silly to walk away from an acquisition, especially with consistently wallowing stock prices and profits (while shares have risen 3% since the beginning of the year, they remain behind by about 12% YOY.)

Does the new deal have to spell death or acquiescence for the retail chain? Not hardly: Both Sears Holding (SHLD – safety score 16) and Best Buy (BBY – safety score 93) have struck similar agreements with Amazon, and neither one is yet extinct, although both are in a similar stock outlook to Kohl’s. The flip side is that both Borders and Toys R Us also partnered with Amazon to get ahead of the fold…and neither one survived the move. The holiday season will likely be a boom for the store, as it obviously is for Amazon each year, but the real test will come in the months afterward, when returns take place and new purchases are made to capitalize on holiday gifts. Will customers buy at Kohl’s? Or will Alexa just know them better at that point?

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Written by Danielle Bilbruck

 
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