Is Kohl’s giving away the store to Amazon?

Discussion
Photo: Kohl's
Sep 07, 2017
George Anderson

It’s complicated. That might explain the current state of mind among retailers that seem increasingly preoccupied with Amazon.com. On one hand, the e-tail giant represents a competitive threat with disruptive business practices and growing market share in categories from apparel to toys. On the other hand, it also offers retailers a selling platform and products to which millions of customers are drawn.

Some retailers attempting to slow Amazon’s advance have begun pulling their business from the Amazon Web Services (AWS) cloud operation. Others such as Walmart have pressured technology vendors to do the same. The argument is that AWS profits are used to subsidize Amazon’s efforts to undercut competitors on price and delivery services.

While most retailers try to come up with responses to blunt Amazon’s forward attack, many are also supporting it by selling the Echo voice-activated speaker line and other devices such as Fire and Kindle. Best Buy, Target and Staples fall into this camp.

Going one step further is Kohl’s, which announced it is opening Amazon smart home experience shops inside 10 stores in the Chicago and Los Angeles markets next month. Kohl’s customers will be able to purchase devices such as the Amazon Echo along with accessories and services directly from Amazon in the shops.

“We are thrilled to offer a unique new way for customers to try out our lineup of Alexa-enabled Amazon devices, learn more about our smart home services from Amazon experts and then buy those items directly from Amazon,” said Dave Zimmer, vice president, sales and marketing, Amazon Devices.

“We believe in the power of our store portfolio and know that our future as a best-in-class omnichannel retailer will be driven by how inventive, compelling and unique we can make our store experience,” said Michelle Gass, Kohl’s chief merchandising and customer officer.

Bankers working in mergers and acquisitions report receiving a noticeable increase in retail clients asking them to contact Amazon to see if the e-tailing giant might have an interest in acquiring their companies, according to a Financial Times report. The uptick follows Amazon’s recent acquisition of Whole Foods Market.

DISCUSSION QUESTIONS: Is Kohl’s making a good or bad decision in opening Amazon smart home experience shops inside 10 of its stores? Why do you think Kohl’s is allowing sales to be made directly to Amazon instead of through its own system?

Braintrust
"Opening Amazon smart home shops inside Kohl’s is tantamount to opening Target or Walmart boutiques inside of Kohl’s."
"Kohl’s is doing something I expect many more retailers to admit — their customers are going to be Amazon customers no matter what they do."
"Unless Kohl’s is making a competing smart home system in secret labs across Wisconsin, there’s no reason they wouldn’t benefit..."

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33 Comments on "Is Kohl’s giving away the store to Amazon?"

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Mark Ryski
BrainTrust

Keep your friends close and your enemies closer … I guess. This is a perplexing decision on the part of Kohl’s. On the one hand, opening smart home experience shops is trendy and unique. On the other hand, it’s Amazon! Offering cool smart home solutions is an interesting move and if it were anyone’s products other than Amazon, I would say it’s a great move. Opening Amazon smart home shops inside Kohl’s is tantamount to opening Target or Walmart boutiques inside of Kohl’s — why would you make it easy for your customers to buy from your competitors?

While I’m sure Kohl’s management believes the move demonstrates confidence in their business and forward thinking — strategically I don’t think it’s the smartest thing they’ve ever done.

Charles Dimov
BrainTrust

I agree with you Mark … this move really does make you take a step back and re-evaluate things. It’s not in our traditional retail strategy playbook. I also totally agree that this is another smart move on Amazon’s part.

What I have to wonder is: will this be a first step toward more such strange interactions to come? Will the future of retail become a much more interwoven mixing of competitors into coop-etition consortia? Will we start seeing more competitors advertise in each other’s stores? Perhaps leveraging in-store pickup across competitors to increase their own footprint and retail offering?

Interesting new paradigm and possibilities …

Dick Seesel
BrainTrust

A 10-store test in an 1,100-store chain is not significant in the short term, but it’s an interesting alliance. (My usual full disclosure: I worked for Kohl’s between 1982 and 2006.) It’s curious that the sales revenue goes straight to Amazon (with a presumed piece of the action to Kohl’s), compared to the traditional model where somebody walks into the store and uses his/her Kohl’s card to buy an Echo Dot. It’s also a recognition that the “smart home” business needs more hands-on salesmanship.

Amazon look like the winner in this deal, because it potentially leads to another brick-and-mortar tie-up with a much bigger store footprint than Whole Foods, without the cost of a flat-out acquisition. Meanwhile, Kohl’s benefits from increased traffic and a meaningful use of space at a time when it is “right-sizing” about half of its stores. This is worth watching.

Dick Seesel
BrainTrust

Just to reply to myself after reading others’ comments today … sometimes a store like Kohl’s needs a partner with particular product expertise. In the case of fitness trackers, it was Fitbit … in the case of cosmetics, it was Estee Lauder at one point. In the case of “smart home,” it’s Amazon. We may all be overthinking Kohl’s desire to get into a hot category, and Amazon’s desire for a bigger brick-and-mortar footprint.

Art Suriano
BrainTrust

I think Kohl’s is implementing smart “if you can’t beat them, join them” logic. Amazon is not going away and if retailers can find ways of partnering with them successfully where they both win then they should do it. It’s hard to project years from now where this will all lead. No one thinks back to the 1960s and 1970s when Walmart was the Amazon of its day going into many small towns and taking over the majority of the mom-and-pop businesses. That led to additional discount chains likes Ames, Jamesway and more, and it changed the retail business as it was known back then. It’s something no one can control.

Amazon is pushing all retailers to the edge. Many of them have had years to get ahead of where they are today but chose not to invest in their companies. Now Amazon is making many of them wake up. I think as time moves on, we will see a healthy blend of the brick-and-mortar stores of the future working hand-in-hand with the e-commerce retailers of the future.

Jon Polin
BrainTrust

It’s unclear to me why any retailer with self respect is enabling Amazon a channel through which Amazon can ultimately steal that retailer’s customers. I don’t like this move by Kohl’s … unless they are one of those retailers screaming “buy me” to Amazon.

Charles Dimov
BrainTrust

Definitely a head-scratcher. It is always dangerous business to cooperate with the enemy. However, taking risks, experimenting and doing what is counter-intuitive sometimes brings huge results. On the whole, giving the 800-pound gorilla more clout is a questionable strategy. Being the first one to experiment with this will definitely bring more foot traffic into Kohl’s stores in the coming weeks. Kohl’s has been doing the right thing for some time in the omnichannel space. This may ultimately prove to be a brilliant move in hindsight.

Max Goldberg
BrainTrust

Amazon isn’t going away and, if a retailer wants to offer new and exciting products, the ones Amazon makes have to be among its offerings. Retailers can learn from selling Amazon products while giving their customers what they want. Kohl’s is smart to test this concept. That way they can see how letting Amazon into their stores impacts Kohl’s customers and the bottom line.

Lee Kent
BrainTrust

The upside I see in this strategy is the potential to draw more customers into the store. The risk is, are they Kohl’s customers? As to allowing sales to be made directly to Amazon: Well if the customer is only there for Amazon nothing is lost but, if the customer buys from both? That is an inconvenience that just might make them decide not to come back. Like George said, “It’s complicated.” And that’s my 2 cents.

Brandon Rael
BrainTrust

This is a very intriguing and interesting development. The store-within-a-store concept has been around for a long time, and historically it has worked well for both sides. Potentially, this could be an interesting partnership between Amazon and Kohl’s. The most interesting aspect of this is that Amazon is a direct competitor in many of the Kohl’s product categories. However experience shops are the rage today, and this transformation and partnership may provide long-term dividends.

Kohl’s is very wise to take a crawl-walk-run approach with this Amazon partnership, particularly as it’s only in 10 of their 1,100 stores. The results, consumer insights, incremental revenue, margin and foot traffic results could be easier quantified before making any significant investments into this partnership.

Ultimately, Amazon is gaining another brick-and-mortar footprint with minimal risk and investment on their side. Let’s see how this plays out!

Neil Saunders
BrainTrust

This is not a bad move, but neither is it one that will transform Kohl’s — mainly because Amazon devices are now so ubiquitous and sold all over the place.

That said, there is nothing wrong with Kohl’s partnering with Amazon. People are going to buy these devices anyway, so Kohl’s has nothing to lose. Indeed, it has too much space in some of its stores so this move arguably helps productivity.

As for aiding a competitor, I’m not sure I agree. This arises from the mindset that Amazon is an apocalyptic threat to all in retail. It isn’t. There is plenty of room for Amazon and many, many other good retailers.

Kiri Masters
BrainTrust

Seems fairly short-sighted at face value. Kohl’s will get a one-time benefit from consumers purchasing Amazon devices in these 10 stores. Once the device is in the hands of the consumer, Amazon will be encouraging future purchases through their ecosystem, not Kohl’s.
Kohl’s is propelling their own customers into the vortex of Amazon’s flywheel.

Ken Lonyai
BrainTrust

Absolute mistake. I brought this point to bear in my article shared on RetailWire: Are retailers selling their souls and giving away customers to Amazon? In the full article, I stated “There is no sound logic that can justify why these stores are traveling down this road. The net revenue from selling these devices is paltry. The win is all Amazon.”

I stand by that. This is a desperate move on the part of Kohl’s looking for traffic and revenue by “dancing with the devil.” The “if you can’t beat them, join them” logic is misguided for Kohl’s and others. Short-term Kohl’s gains a little, long-term they lose.

Slowly Kohl’s is shaping Amazon’s strategy of making Amazon a trusted/needed source in wider and wider demographics. It’s slow and immeasurable, but the shift in consumer mindset is where future decisions to just go to amazon.com or ask Alexa are formed. And it will be those choices over hopping in the car and driving to Kohl’s for what is largely an uninspiring shopping experience that will make this “cooperation” regrettable.

Anne Howe
BrainTrust

Kohl’s has over 1,000 stores that might make a fantastic physical distribution network for Amazon. Just sayin’…

Mohamed Amer
BrainTrust

Let’s look at this from a different angle. Does Kohl’s have a smart home assortment/offering for their customers? Might they believe that this category will be a hit with their customer base? Is there a way to associate the Kohl’s brand with this new category with immediate credibility and trust?

The answers to those questions (no, yes, yes) suggest that Kohl’s decision is more rational than not and recognizes that value will accrue if you put the customer at the center of your strategy and partnerships. Significant advances in business do not happen by following the generally accepted operations. I applaud Kohl’s for expanding their decision horizon (and learnings) with this deliberate step.

The pilot is extremely limited but expectations and implications are certainly outsized. Low risk (really), high payoff strategy!

Ben Ball
BrainTrust

While it is too late in the day to impact the discussion much, I still have to go beyond the “thumbs up” button I just clicked and post a hearty agreement with your reasoning Mohamed. I think you hit this one right on the head. And I agree that this is another typically smart move for Kohl’s.

Mohamed Amer
BrainTrust

I appreciate the hearty agreement Ben :-).

Dave Wendland
BrainTrust

You summarized the rationale well, Mohamed. The risks are relatively low for Kohl’s and IF it actually drives “new” traffic into the stores and IF it generates incremental sales and revenues, then the test will prove successful. I’m concerned about the multiple transactions and associated shopper inconvenience, but remember, this is only a test.

Mohamed Amer
BrainTrust

Thanks for the comment Dave. That’s the beauty of “tests” and this one is only 10 stores (so far).

Naomi K. Shapiro
BrainTrust

I love the way Mohamed Amer states, dissects, and answers the questions — logically and rationally. I’m in his camp about the risks and outcomes. I vote for George’s second option: On the other hand, it (the Amazon/Kohl’s arrangement) also offers retailers a selling platform and products to which millions of customers are drawn. It’s what happens after that that is the issue.

Mohamed Amer
BrainTrust

Thanks Naomi, I believe the future retailing landscape will be much different from the one we’ve been accustomed to. There’s no way to eliminate uncertainty, but we can set up the organization to take advantage of the changes we anticipate will take place.

Jasmine Glasheen
Staff

Unless Kohl’s is making a competing smart home system in secret labs across Wisconsin, there’s no reason they wouldn’t benefit from offering Alexa-enabled devices in their stores.

Instead of focusing on the fact that Amazon is competition for traditional retailers, focus on this: if customers are going to Kohl’s to try out smart home appliances, they aren’t shopping online with Amazon.

This seems like a great way for Kohl’s to rustle up some more foot traffic for their stores, and to modernize their image in the process.

Cathy Hotka
BrainTrust

I completely agree … and as the smart home gets smarter and people need some support and direction to implement new tools, they’ll think of Kohl’s. I like it.

Ken Lonyai
BrainTrust

Unless you have data to back up your assertion “if customers are going to Kohl’s to try out smart home appliances, they aren’t shopping online with Amazon,” that’s hard to believe, especially since showrooming is alive and well. And making my own assertion, if shoppers are looking to learn about smart home products, they are most likely going to consumer electronics stores like Fry’s and Best Buy not department stores or mass merchandisers.

And a general statement: anyone that believes Alexa/Echo is primarily geared to home automation, personal assistant services, and third-party skills (only 3 percent utilization rate) is giving Bezos a helluva belly laugh.

Jasmine Glasheen
Staff

I appreciate your passion, Ken! Check out my recent article for Dor http://blog.getdor.com/2017/08/17/webrooming-disrupt-online-retail/ to learn more about how webrooming is growing in popularity.

Ken Lonyai
BrainTrust

It sounds like you’re assuming showrooming and webrooming are mutually exclusive, which they are not. As you are aware, the stats which you used from a POS/payment supplier show 50 to 53 percent of shoppers(?) they polled (?) showroom. That’s a significant amount, yet the real point isn’t about showrooming, it’s about the silent self-bloodletting stores like Kohl’s are willingly participating in with Alexa, when there are other obvious roads to take.

Mark Heckman
BrainTrust

It is difficult for me to see this alliance having a positive long-term outcome for Kohl’s unless Kohl’s management is setting themselves up to become the next “Whole Foods” type acquisition of Amazon. Kohl’s may be thinking that they’re entering the gates of the empire and joining the action instead of camping outside and watching marketshare and brand value dwindle over time.

Harley Feldman
BrainTrust

I think this strategy works for both companies. Kohl’s will get more brand awareness and customer visits being associated with and carrying some Amazon products. Amazon will get brand awareness as a local retailer. This shows that retail store outlets are still in demand, and stores are not going away any time soon.

Kohl’s will let customers order directly from Amazon because what is behind the strategy is driving consumers into the stores, not the small impact these product sales will have on Kohl’s total sales. Kohl’s is betting that the additional traffic driven by Amazon products will generate incremental sales for Kohl’s items while the consumer is in the store.

Brian Kelly
Guest
16 days 18 hours ago

a 10-store test. What’s the downside to Kohl’s? Kohl’s, a national chain of mid-price fashion with an aggressive high/low pricing strategy, is at risk of extinction. Stores of this ilk, a cousin of department stores, are fading fast. Kohl’s was an early “disintermediator” of mall stores. It was mall apparel without the hassle of the mall. It was always about taking the friction out of outfitting a family. Kohl’s has to prove relevance to the surge of digital natives entering family/home formation years. This is an extension of its brand legacy.

So Amazon, as an ingredient brand, is a test for the host brand Kohl’s. What brand is more relevant to these moms than Amazon? Amazon looks at the retail industry as if it’s a roulette table. Kohl’s is yet another bet. And a smart one. Kohl’s has some overlap with Whole Foods, and lots of opportunity.

Net-net this is a great decision for Kohl’s. Roo bad none of the mall anchors thought of it.

Ricardo Belmar
BrainTrust
This is bound to become an all-time classic RetailWire discussions/debates. Here’s my more-or-less objective view of the situation in 5 points: 1) It’s a 10-store test out of 1100 stores. That’s far from a commitment by Kohl’s. It’s clearly a test. The question is, what is Kohl’s trying to test/evaluate? 2) Kohl’s (and other dept stores) for all practical purposes long ago abandoned pure consumer electronics departments outside of home appliances. This may be Kohl’s attempting to test having more consumer electronics in the highly fashionable smart home category by associating with the Amazon name — which just happens to be a popular brand in the smart home space. 3) Amazon has been using pop-up kiosks in malls to showcase their electronics for a while now. Similar to what you will get at these 10 Kohl’s stores you could try before you buy (direct from Amazon) and get help/consultation on how to implement your smart home with Alexa. For Amazon, this provides yet another outlet to reach new customers for these products. 4) Kohl’s probably hopes to get increased foot traffic into the store by drawing people in with the Amazon name and the glitz of smart home technology. Not… Read more »
Larry Negrich
BrainTrust

An odd decision. I would say that a shopper who has already purchased an Alexa via Amazon would then also purchase most of their Alexa-related extras directly from Amazon too. This is the Amazon shopper. This person would not be driven to visit a Kohl’s to make an additional Alexa-related product.

So, Kohl’s isn’t getting business that would be going to Amazon, but is giving up some portion of its shopper’s wallet and time-in-store to improve the future channel of Amazon in the form of selling an Alexa-related product. I don’t see that there is enough margin, traffic or PR value for that arrangement to be a positive for Kohl’s.

Jeff Sward
Guest

I love everything about this move on both ends. It’s counterintuitive for a few seconds, but I love the fact that it breaks a lot of old rules and starts to write some new rules.

Amazon is stealing customers anyway, and that’s not going to abate any time soon. So aligning with Amazon and getting their customers to come into your store sounds brilliant. Amazon is stealing your foot traffic so you use them to help build it back up. And yeah, then the competition kicks in. This is a bold move on Kohl’s part — new thinking, new rules. Potentially a great combination of B&M and internet shopping.

Jett McCandless
BrainTrust

I think I’d like to hear more information about the monetary implications of this deal before I assess it completely, however I do think it’s a good idea for retailers to work WITH Amazon instead of against them. Partnering with Amazon means that you’re on the good side of the most powerful force in modern retail. Kohl’s is giving itself priority over rival outlets in the eyes of Amazon, and I think it will pay off in the long run.

wpDiscuz
Braintrust
"Opening Amazon smart home shops inside Kohl’s is tantamount to opening Target or Walmart boutiques inside of Kohl’s."
"Kohl’s is doing something I expect many more retailers to admit — their customers are going to be Amazon customers no matter what they do."
"Unless Kohl’s is making a competing smart home system in secret labs across Wisconsin, there’s no reason they wouldn’t benefit..."

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