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Will Amazon department stores spell trouble for Kohl’s?
Amazon.com is planning to open several large retail stores in the U.S. that will be its take on the department store model, reports The Wall Street Journal.
The locations, which will measure around 30,000 square feet, will be much smaller than a typical full-line department store and offer Amazon’s various private labels as well as popular consumer brands in categories including apparel, consumer electronics and furniture.
The stores, with locations in California and Ohio, represent Amazon’s latest move into physical retail. The retail giant currently operates several formats with its name on the banner — Amazon Fresh, Amazon Books and Amazon Four Star. Whole Foods Market is the Amazon property with the largest number of physical locations.
Amazon’s connection to the department stores has until now largely been focused on repurposing empty anchor locations in malls to serve as local distribution centers. The company at various times has also been linked to rumors of acquisitions, such as J.C. Penney and Kohl’s, that never materialized.
Kohl’s has frequently pointed to its relationship with Amazon — it accepts product returns for the site in all its stores — as a plus for its business. The chain’s executives have maintained that the traffic to its stores driven by those returns has led to incremental purchases.
Michelle Gass, CEO of Kohl’s, told analysts yesterday on the retailer’s earnings call that Amazon has “been great partners.” She said it was clear from the start of the companies’ working relationship that they had “complementary strengths.”
“We do returns really well and we provide the seamless experience to their customers. And what we get in return is new customers, traffic,” she said, adding, “and one of the things we have actually seen is that our conversion year-on-year is improving.”
Ms. Gass did not offer any statements indicating that a change was forthcoming.
“They’re very pleased in terms of how we support them in their returns process, and both companies kind of share the obsession on putting the customer first and exceeding customer expectations, and we have world-class promoter scores. So plan to continue forward,” she said.
Kohl’s reported second-quarter earnings of $2.48 a share and raised its forecast as consumers have returned to stores with millions of Americans getting vaccinated and state and local governments lifting measures tied to preventing the pandemic’s spread.
Discussion Questions
DISCUSSION QUESTIONS: How would you expect a smaller box Amazon department store to look and operate compared to legacy retailers in the same channel? What would this and the development of smaller box stores by Bloomingdale’s and Nordstrom say about department stores going forward?
Poll
Loading …BrainTrust
Amazon’s move into larger retail spaces was inevitable and this latest move appears to be yet another experiment in operating physical stores. While many have been predicting that Amazon would acquire one of the existing department store retailers like J.C. Penney or Kohl’s, this latest move may merely be a precursor to a larger play once they have developed and refined a larger store format. While it’s impossible to say how fast or how far this concept will go – other than acquiring Whole Foods, Amazon’s expansion into physical retailing has been relatively modest – what is clear is that physical retailing is becoming an increasingly important part of Amazon’s retail business.
Amazon usually thinks three years ahead so this has likely been in the works for some time. I agree with you 100 percent that this is a clear sign that brick-and-mortar is an essential part of the ecosystem. This move could also help Amazon fend off competition from Alibaba’s recent announcement of delivering anywhere in the world in three days for $3.
Never underestimate Amazon! The department store retail segment has been challenging for several years and now they are faced with a formidable competitor. This is a calculated move by Amazon. With an eventual broad coverage of physical stores, Amazon can bring their inventory closer to customers and use their stores as distribution centers, just like Walmart and Target.
But “department stores are dead,” says one retail outlet every three months.
“But everything is only going to be online,” said every digital native(!)
“Who would go to a store anymore?” Asked many retail conferences.
Heck even the ICSC – the International Council of Shopping Centers, the home to department stores, had to run from their own name and change it to the ambiguous Innovating Commerce Serving Communities.
Maybe Kohl’s taught Amazon how to do physical well but one thing is clear — physical locations, malls, and department stores all got a lift from this news.
Kohl’s stores are almost entirely in the 60,000-to-90,000 square footage range, so in some ways the Amazon move feels more akin to Target’s small format stores. Yes, there is risk to Kohl’s but a lot depends on Amazon’s location strategy. If the smaller format allows for more urban locations (vs. suburban power centers and strip malls), then Kohl’s has less to worry about. Amazon’s track record in brick-and-mortar stores is mixed.
Ultimately, content will make or break this Amazon concept, while Kohl’s continues to position itself up and away from Target. (See: Sephora, Calvin Klein, Eddie Bauer, Cole Hahn as a few examples.) Amazon may also discover that it’s hard to replicate its vast online assortment in a 30,000-square foot building that also serves as a return center.
Compared to legacy department stores, expect Amazon to offer superior convenience, speed and agility.
To rock omnichannel service and maximize sales, Amazon will likely offer:
Streamlined box stores will make the customer experience more efficient and inviting than department stores with sprawling footprints.
I wouldn’t count out an Amazon deal with Kohl’s just yet. It has to be tempting to get into retail with both feet versus building from scratch. So these new Amazon “department stores” are just that. A test at building a new model from the ground up. They will very quickly learn just how easy or difficult that will be versus buying Kohl’s and re-rationalizing both product and process. No matter which way that conversation goes, existing department stores need to figure out what to do with their abundance of unproductive space. My favorite example is a two-story Sears that I watched being converted into one floor of Sears and one floor of Primark. Lots of existing mall anchor department stores could house a new Amazon, and — So many possibilities!
I’m still trying to figure out how different these stores will be from their “top item” stores. Those aren’t particularly small as-is, but will these stores just be larger versions of those? Or will product assortment differ? I kind of feel as though Amazon is just doing this to prove they can do anything, even the type of retail that has been in decline.
Ironically, I expect Amazon to put a lot of effort into the sales associate strategy in these stores in order to differentiate the experience from the online channel.
If they nail the department store format, I’m sure the legacy department stores still in need of a refresh will change their formula to mirror Amazon’s.
Melissa, you hit it spot on. Great perspective.
Physical retail is local. This store would impact to the extent that any new entrant would do, for existing players within a five mile radius. Kohl’s has 1000+ stores. They will not be particularly threatened by the opening of a handful of Amazon stores. Nor should we see this as Amazon trying to replace Kohl’s.
Rather, Amazon has always been learning on the field and using that knowledge to improve its online offerings. They would collect a tremendous amount of insights on shopper behaviors in a department store setting. Much like how they opened beauty services and grocery stores, this should be seen as doing just enough to understand the customer behaviors and refine their own core products.
Whichever way you cut it, this won’t be helpful for traditional department stores whose defenses are weak after decades of under-investment and failing to evolve. Obviously, the scale of the damage depends on how far and fast Amazon rolls this concept out – and that remains to be seen as this, in true Amazon fashion, could be a play to experiment and learn. Then again, it could be the prelude to a much wider physical push.
But how very ironic if stores which have shouted the narrative of how Amazon’s online business has destroyed physical retail, suddenly find themselves under attack from Amazon in the physical world. Of course, it is utter nonsense that many legacy U.S. retailers were damaged by online. They weren’t. They were harmed by their own internal failures.
Amazon will certainly put its own slant on the department store model. Using its masses of data to create a unique customer experience. It’s smart of them to diversify, it will be interesting to see if this is the right bet.
I’m going to completely disagree with Lisa – this is another retail experiment by Amazon that is doomed to failure. They live by the long tail, which is totally antithetical to a department store, which has to be at the top of the curve. What can they possibly offer in a store except low prices? Oh wait – they offer low prices because a.) they don’t have to stock a lot of stuff in a retail store and b.) they’ve always put profits secondary to building businesses – a model that doesn’t work in real stores. My guess is this does nothing to existing retailers except bringing some traffic to a dead mall they may be in.
I would expect Amazon stores would focus on higher sales items and those that sell better when the consumer can see or handle them like electronics. I would also expect consumers to be able to send products to the Amazon stores for pickup for a small or no fee. Also, consumers would be able to return purchased Amazon items much as they can do at Kohl’s stores today.
The smaller box stores allow the retailers to have more stores in additional locations rather than having huge stores in a smaller number of locations. It allows the retailer to be closer to a larger number of customers.
We should all know by now that panicking about Amazon stores of any kind is a waste of time. Bookstores, grocery stores, convenience stores, 4-Star stores — are any of them of any scale at all?? I don’t believe Amazon really wants physical retail in large magnitude at all, or at least of a size to compete with Kohl’s (in a physical sense). To use military jargon, they’re just probing the perimeter, learning what makes these things tick so they know how to address them with the main force.
Personally I’d rather see an initiative for an Amazon Emporium — big 100,000 plus square foot stores featuring all the good condition returns that shouldn’t be destroyed or go to landfills, selling at deep discounts. I suppose there’s a market for the product intended for these 40,000 small department stores, but frankly I thought that market was already being serviced by online, or, if it’s national brands, all the stores currently selling national brands. If Amazon thinks its private label product is so good that it needs a brick-and-mortar outlet, I would have thought they would sell it through other partners. You know, just as it offers its partners the marketplace or fulfilled-by-Amazon opportunity, Kohl’s could have offered an Amazon section in their stores. But then Amazon’s model is really to extract every margin dollar they can from anywhere and everywhere, and be vertically integrated from the supply chain through customer delivery — all the while repeating what good partners they are.
I rarely bet against Amazon. I expect Amazon will take all of the learning from its online and brick-and-mortar stores to develop a new department store model. Ironically, Amazon appears to have done a better job of entering the brick-and-mortar space of retailing than these same retailers have done in the online world. Amazon will change the department store shopping paradigm. The question is how will these traditional retailers react to such changes? Or more importantly, how will they get ahead of such planned incursions into their space?
Amazon’s decision to develop larger footprint “department-like” stores is a natural evolution of their tinkering DNA. It’s what they do. It’s part of their formula for industry and market disruption. Will it affect Kohl’s? Possibly. There is one constant that you can bank on. They will outfit the place with technology that they can test, trial, change, rinse, repeat. This includes deep analytics on the back side of transactions. I view this as a temporary play that leads to a much larger, disruptive move in 18-36 months. Stay tuned!
Amazon has proven that it can adapt to physical retail (and they are committed to it!) and continue to push the envelope on consumer experience. Traditional department stores must be intentional with their approaches to shopper relevance when it comes to assortment, merchandising, and digital integration. Those that are lagging may never catch up. Specific to Kohl’s, I’m quite bullish on the moves they have made. Bloomingdales, Nordstorm, J.C. Penney and the like may be more vulnerable.
The ground continues to shake beneath the feet of legacy retailers — and standing still is not a good idea.
Legacy retailers invented omnichannel, not Amazon. Amazon arguably invented e-commerce at scale and is now, since it began opening stores and purchasing Whole Foods, catching up to omnichannel. This new, larger Amazon footprint is another experiment, another extension into omnichannel. Legacy retailers had a 10-year head start on Amazon and were just too “successful” (in their limited vision) at the time to move as aggressively and seize the opportunity. You could say legacy retailers were blindsided by Amazon, but it all took place in front of their noses while they slow-walked omnichannel.
If a store is “much smaller than a traditional department store” is it really a department store? I’ll side with the many here who see this as (yet another) product of Amazon’s ever-busy PR department than some kind of seminal point in retailing; they don’t need to replicate the million-square-foot-plus behemoths of yore, but still something more than this to convince me they’re serious.
I eagerly await the 30,000 square foot “department store.” That is smaller than a typical Ross.