We’ve observed before that a big question for retail firms today is how they choose to react to Amazon. Do you panic and assume that the Big Bad is coming for your business? Do you chuck money at trying to be Amazon, abandoning your real estate along the way? Or do you try to co-exist and find a way to work in a new reality?
US retailer Kohl’s has taken that last option over the past year, piloting an alliance with Amazon that looks set to expand in 2019. Customers are already able to return goods bought from Amazon to 100 Kohl’s stores, while 30 of the latter’s outlets contain their own Amazon shops.
As the Holiday season gets underway in earnest today, visitors to all Kohl’s stores will be able to pick up Amazon products, such as the Echo or Alexa. CEO Michelle Gass is still striking a cautious tone when talking about the partnership - it’s a thin line between co-existence and capitulation - but it’s clear that the results to date have been mutually beneficial:
We are continuing our pilot with Amazon in Chicago and Los Angeles markets and…we expanded the pilot to include southeastern Wisconsin We now accept Amazon returns in about 100 stores and have tripled the number of Amazon shops inside Kohl’s stores from 10 to 30 shops. Additionally, we’ll be selling Amazon branded products across all stores for the holiday season, including Black Friday favorites such as the Amazon Echo and The Echo Dot.
It is kind of, core to our DNA that we like to test and assess these pilots especially ones that have significant consequence if we roll them out broadly so things like loyalty or active or even Amazon. We’re really pleased with the pilot. We’re driving a great level of customer engagement, customers love it. This [Holiday season] will be important for us because clearly, it’s a big time when people have a lot of packages to return.
It is our first quarter where we have packageless returns, which is really a key point of difference in the whole returning process and we didn't go live with that till January. So this is our first fourth quarter as it relates to packageless returns. We now are across three markets, so that gives us a greater sense of scale in terms of the opportunity. So we and Amazon are continuing to assess that, but we feel really good about the customer experience, how it reduces friction for them and more to come.
It’s an interesting twist on the ‘learning to love the store again’ meme that’s rippled out across the retail sector over the past couple of years. Where once a ‘legacy’ offline presence was regarded by many retailers as a burden, now there’s an awakening that while there may some fat that needs to be cut away, there’s meaty goodness to had as well if there’s some more sophisticated thinking. Gass says:
Stores are here to stay, but their role is evolving. We’ve launched two pilot stores where we are testing a new customer service center concept, that includes a centralized checkout, a new impulse merchandising approach, self-checkout, new self-service kiosks and BOPIS lockers. We’re also equipping our associates with iPad to be able to assist customers through mobile endless aisle. We are looking forward to getting feedback from our customers, as we test more technology driven solutions to make their shopping trips to Kohl’s even more easy and convenient.
Digital investment is therefore a priority on the CEO agenda, she argues:
We have continued to invest in digital to drive greater engagement and impact with our customer, which includes, our mobile app, Your Price, personalized search, Smart Cart, BOPIS [Buy Online Pick-up In Store] and the recent launch of BOSS [Buy Online, Shop to Store]. We have improved our digital platform to increase find ability, create a more personalized experience, reduce friction, and help our customers maximize their savings. All of this is paying off by driving increases in both traffic and sales across our digital channels.
Currently that accounts for a “mid-teen” growth rate, with mobile making up 70% of digital traffic and almost half of all digital sales. That makes boosting the functionality of the Kohl’s mobile app a priority. Gass says the app has been downloaded by more than 25 million customers, while around 5 million customers are actively engaging with the app on a monthly basis:
Customers are using the app either to make purchases or to use functionality in store like the Wallet, which puts all of our customer’s offers in Kohl’s cash in one place. The app now represents a significant part of our traffic and our sales and we are encouraged by how our conversion growth outperforms all other digital channels and how it's driving customer loyalty. We expect app adoption to continue to grow as we invest in making experience even more seamless and personalized for our customers.
The pursuit of personalizaton is essential, says Gass:
I'm really excited about the progress on personalization. That’s giving us the agility through our digital means to be highly relevant and I think especially as we have both, reaching out to a new Millennial customer, but we have to be maniacally focused on protecting that core customer base and personalization gives us new muscles to do that.
BOSS and BOPIS
The other big trick is to leverage digital to bring customers into the physical stores, which explains the importance of the BOSS and BOPIS programs, she adds:
BOSS significantly broadens the assortment available to our customers for free pick up in-store, complements our existing bogus platform and importantly will help us drive traffic into our stores. We are leveraging our Smart Cart capabilities to incentivize customers in real time to pick up their orders in the store versus shipping it to them, a win for both driving traffic, and reducing shipping cost.
In addition, we’ve added twenty five hundred handheld devices to support associates for omni channel fulfilment and the recently introduced smart fulfilment, which allows associates to replenish the right inventory at the right time from the stockroom to the store floor.
These investments will increase the number of units picked per hour and associate productivity. Lastly, we have built a strong fulfilment network to serve our growing Kohl’s.com business. Our fifth EFC [eFulfilment Center] has been fully operational for over a year, and we’ve begun construction of our six EFC this year. It will be highly automated and three times more productive than our first generation EFC.
Kohl’s is a good example of a pragmatic approach to new retail realities. As Gass defines those:
We are an omni-channel retailer and so we’re pretty agnostic in terms of where [customers] are shopping as long as they are engaging with Kohl’s. We believe our benefit is that we do have a very strong omni-channel strategy against many of the initiatives and the initiatives do touch largely both channels.
This is sound thinking. And it’s paying off - the firm just turned in a fifth straight quarter of rising same store sales, a feat that most retailers can’t pull off. Profits are up year-on-year as are revenues, albeit only by 1.3%.
Kohl’s online Black Friday sales are already underway and in common with every other US retailer, all eyes will be on how the firm performs over the coming Holidays, but for Kohl's they will also be tracking how much that Amazon alliance helps its numbers.