Customers of Amazon.com (NASDAQ: AMZN) can now return their packages to any Kohl's (NYSE: KSS) store after the department store chain announced it was expanding the pilot program to all 1,150 stores in 48 states.
Begun in 2017, the Amazon returns partnership allows any customer to bring a purchase into Kohl's, where the retailer will pack and ship the item back to the e-commerce giant free. Kohl's CEO Michelle Gass said, "This new service is another example of how Kohl's is delivering innovation to drive traffic to our stores and bring more relevance to our customers."
It is unique and runs counter to the experience many other retailers have when they let Amazon stick its nose under their tent. But it is still difficult to see how there's any real, meaningful benefit to Kohl's.
Unhappy Amazon customers can skip the repackaging and go straight to Kohl's. Image source: Getty Images.
By all indications, the partnership between the two has not been negative, and all three parties involved in the the transaction presumably benefit.
- Customers appreciate the relative convenience of taking their packages to the store and not having to bother with wrapping them up or paying for the return.
- Kohl's enjoys the incremental foot traffic it brings into the store and the potential for Amazon customers to turn into Kohl's customers if they browse its aisles.
- Amazon is able to make another connection with customers in physical retail stores while increasing the ease of shopping on its website.
The question is: Just how much of a benefit is Kohl's really getting out of the returns program? Although the retailer itself has yet to provide any numbers, there are indications it may be working, beyond the fact Kohl's is taking the program companywide.
In the year after the pilot program launched, a Gordon Haskett Research Advisors survey suggested it was having the desired effect. Data from 13 Chicago-area Kohl's stores found that traffic at the five stores participating in the returns program was 8.5% higher than at those that weren't participating. Those stores also drew in 56% more people who hadn't visited a Kohl's store in the three months before the program started.
But it's hard to pinpoint why those shoppers were actually there, and suggesting that only the returns program drove large crowds into the retailer seems a stretch.
...But little real impact
Comparable-store sales at Kohl's were up 1.7% in 2018, which isn't all that much different from the comps growth of 1.5% it experienced in 2017. Although the program was only in 80 or so stores for the first year, or about 7% of the total, it seemingly had a negligible impact -- if any -- on growth. Furthermore, the returns program was bumped up to 100 stores last October when it was expanded into Wisconsin, yet Kohl's fourth-quarter comps tumbled from a gain of 6.3% in 2017 to just 1% last year.
Other numbers also call into question just how great the partnership is. Amazon generated some $207 billion in worldwide retail sales in 2018, but allocated just $627 million for returns, 0.3% of the total -- or about 1% if we back out Prime membership fees from total sales.
Because those are global numbers, the amount coming from the U.S. is even smaller, though the U.S. makes up the lion's share of sales.
Besides, there are a number of ways Amazon customers can return a purchase. These include the local post office, which is certainly more convenient than running to the mall -- though the customer is responsible for packaging and possibly paying for the return. When you factor all this in, the number of people going to Kohl's can't be all that large enough to make a difference.
Moreover, Amazon also launched a "returnless refund" program where customers aren't even required to return the item to get a refund.
Although the Amazon partnership makes the department store more of a "good neighbor" to customers, and that may generate some goodwill, Amazon's customers are the ones getting the benefit as Kohl's is facilitating sales at the competition.
Unless Amazon is grooming Kohl's for an eventual buyout -- something numerous analysts have speculated Amazon should do in its pursuit of a physical retail strategy -- Kohl's isn't really doing itself any favors by making its rival a better place to shop.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.