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October 9, 2018

Kohl’s Sees Increased In-Store Sales Thanks to Amazon Returns

If you’re in retail, you know Amazon has been causing a lot of disruption. First, it was JC Penney’s and Sears, then Toys R Us earlier this year. So why are Home Depot and Lowe’s now partnering with “the devil?” Amazon is finding mutually beneficial opportunities in partnership with some of these well-known brick-and-mortar retail chains and targeting some of the hardest hit.

One of the Hardest Hit is Now Benefiting

Take Kohl’s for instance. Since 2012, sales for the retail stalwart had gone down by 3% overall. That is until last October when Kohl’s partnered with Amazon to process returns in-store. Customers who ordered something from Amazon online can now drop off those returns at their local Kohl’s store.

The test program began last October when it was announced that 82 Kohl’s stores would process merchandise returns for Amazon customers in LA and Chicago. In return, Kohl’s is now able to sell their products on Amazon. Plus, Kohl’s is now showcasing Amazon products in-store.

Is Amazon Positively Impacting Physical Retail?

Some experts point to Target and Toys R Us as cautionary examples. Amazon struck up a similarly seemingly mutual beneficial deal with these two stores to build up their online presences nearly two decades ago. Over that time Target’s online sales went from 13% in 2006 down to 4% in 2011; when the retailer took over its own online operations. At the same time, Amazon’s online sales grew by just shy of 350%.

Toys R Us met an even more dastardly fate when they partnered with Amazon back in 2000, signing a ten-year deal with the hopes of becoming the “primary toy provider” on Amazon’s website. Earlier this year, Toys R Us announced it is closing its stores everywhere due to bankruptcy.

While Kohl’s is careful not to plunge headfirst into a permanent deal with Amazon, the early signs of their partnership seem to be positive. Could Amazon’s deal with Kohl’s and others like Home Depot and Lowe’s truly have a positive impact on physical retail? The numbers say, so far so good.

Positive Impacts on Physical Retail of Amazon/Kohl’s Partnership

In any deal, both sides have to benefit. So far, both Amazon and Kohl’s are seeing positive impacts and little downside to this relationship. For Kohl’s, which has been on the decline for years competing with Amazon, it now benefits from getting their products in front of Amazon’s billions of online customers.

Sears is going a step further with their partnership by creating Smart name brand appliances that work with Amazon Alexa. Kohl’s is setting up “Amazon Experience” sections in their stores where customers can try out Amazon products in person before they buy.

Long term, it could be that Amazon will try to takeover Kohl’s in order to compete with Walmart in the physical space. In the meantime, the move appears to be working to help boost Kohl’s sales. Back in August, Kohl’s brought the number of stores testing the Amazon return pilot program up to 100 stores.

So far, Kohl’s has seen “better-than-expected” results from the partnership, seeing a 4% increase in in-store sales from last year and an increase of 42 basis points per share. Like Amazon, Kohl’s is benefiting from less competition in the physical space from Sears and JC Penney, which in turn is bringing an increase in foot traffic back to Kohl’s brick-and-mortar stores.

The Chicago Kohl’s saw foot traffic increase by 8.5% compared to all others. What’s most important to Kohl’s executives is the fact that over 55% of those returning Amazon products to Kohl’s have been new customers or infrequent Kohl’s customers. For stores that aren’t participating in the program, that number drops closer to 40%.

Those new customers are spending more time in Kohl’s stores too. From last October to this October, foot traffic at Kohl’s physical stores has gone up by 48% according to a foot traffic study whereas the numbers only increased by 36% for non-participating stores.

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