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Kohl's benefits from Amazon partnership, but remains curiously cautious

Stuart Lauchlan Profile picture for user slauchlan August 21, 2018
Kohl's is seeing the benefit of working with Amazon, not against it.

Every retailer in the world has one thing in common - what’s the Amazon threat level to the business? For some, such as the likes of Barnes & Noble, the answer is potentially devastating; for others, such as the high-end luxury retailers, it’s relatively low; and for others, such as firms in the grocery sector, it’s rising.

What that’s meant is a lot of retailers deciding that their best strategy is to work out how to compete with Amazon first-and-foremost rather than focusing on how best to serve their customers. But for some, it’s about finding a way to co-exist on a ‘if you can’t beat ‘em, join ‘em’ basis.

One such retailer is Kohl’s, which is working with Amazon, but not as a sales channel - or at least, not directly. The retailer has agreed to be a physical returns station for Amazon. If you’ve got something you need to return to the online giant, you pop into your nearest Kohl’s where it will be packaged up and shipped back to Amazon at no charge to you.

What’s in it for Kohl’s? Increased footfall in-store, that’s what. According to analysis by Gordon Haskett Research Advisors, which tracked footfall in 13 Chicago Kohl’s stores, the five stores that were participating in the Amazon returns relationship, had an 8.5% lead in terms of traffic. Stores in the Amazon scheme also pulled in a higher percentage of new customers (55.9%) who had not visited Kohl’s in the last three months, compared to those that weren’t offering the service (42.6%).

The partnership has proved its worth, according to Kohl’s CEO Michelle Gass. The returns facility began at 82 Kohl’s stores across the Los Angeles and Chicago areas. It’s now being rolled out to 21 stores in Milwaukee, so just over 100 Kohl’s locations now participate. Gass says:

We feel really good about the customer experience that we've created. We feel good, the Amazon partners we work with also do. We're still in the assessment stage. We did actually just recently expand into Southeastern Wisconsin, so we're excited to now broaden the store base to over 100 stores and learn from our Milwaukee customers as well.

This is a big deal for us and for Amazon. We are studying it very closely. As we've taken on things of this magnitude in the past, whether it was our first loyalty test or beauty expansion, we want to make sure we optimize and we get it right. And of course, it's us and it's Amazon to make any further decisions.

We're very pleased with the customer response. It is a frictionless experience. We're pleased, and certainly, Amazon is very pleased about that. But all elements have to work. The operations have to work, the financials have to work. So we are doing our best to really understand and dig deep before any decision is made going forward. But we're excited to have expanded the pilot now to 100 stores. It gives us a really robust data set to make a great decision down the road...Kohl's is pretty famous for diving deep in the data, and make sure we understand all aspects of the key metric. So we're still doing that. We're still assessing it.

Digital plans

Elsewhere, Kohl’s is working on putting its own digital house in order. Digital sales are in the low double digits at present, but Gass outlines a number of new initiatives that should see an uptick. One such is a tie-up with PopSugar, a digital media and technology company focused on young women:

In mid-September, we will launch a new proprietary brand PopSugar at Kohl's across our entire women's apparel and accessory categories. This new brand represents an entirely new approach by partnering with a leader in the digital space; one with a very large social media following with millennial women. In addition to the branding and marketing efforts, the brand will use real-time data to inform and build a collection that is relevant to this important customer. We view PopSugar as a terrific complement to the other critical areas of our women's business.

Buy Online, Ship to Store (BOSS) is another effort to pull customers to the stores. Gass says:

The service is currently available in about 20 stores, but will be rolled out to all stores in the next few months. BOSS will significantly broaden the assortment available to our customers for free pickup and store, complements our existing buy online pick-up and store platform and is another great way that we can drive traffic into our stores.

There’s also a big push behind personalization, which Gass pitches as “the future of our customer engagement effort”. She explains:

The vision of our personalization initiative is to drive both traffic and conversion by having our customer see the right message at the right time, in the right place in response to their preferences. We want our customers to engage and to seamlessly move across the site, store, and mobile experiences.

To that end, Kohl’s launched its Smart Cart offering on desktop last year and now on mobile platforms. Gass says:

This program incentivizes customers via Kohl's Cash to come to the store to pick up their online orders rather than shipping it to their home. Smart Cart generates attachment sales in addition to reducing shipping cost. We are deploying personalized search, dynamic media personalization as well as product recommendation. All of which continuously learn from customer behavior to recommend products to our customers. We have scaled personalized triggers, which include savings alerts and personalized emails of top selling relevant products. Our personalized efforts are enabled by the investments we are making in best-in-class technology including an Artificial Intelligence and machine learning framework which constantly adapts to customer behavior to drive optimal result.

My take

“Kohl's is pretty famous for diving deep in the data” - that’s clearly a good thing in terms of understanding the customer and his/her preferences and actions. But too much data diving can also give the impression of lack of action. The Amazon partnership is a case in point. It’s clearly working where it’s been rolled out, but Gass strikes cautionary note after cautionary note when talking about it. I suspect Wall Street could do with a bit more razzamatazz. Profits and sales were both up for the most recent quarter, but the share price slid. There’s a lot of good - and multi-year - stuff going on at Kohl’s. In a volatile retail sector, making a bit more noise about it might be no bad idea.

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