- Investors have applauded Kohl's partnership with Amazon, announced this month.
- However, past Amazon partnerships — specifically its deal with Toys R Us, which filed for bankruptcy protection on Monday night — show that seemingly mutually beneficial relationships don't always help both companies.
- Kohl's partnership with Amazon could ultimately help the e-commerce company crush its competition, Kohl's included.
Kohl's partnership with Amazon could end up being a deal with the devil.
On Tuesday, the department-store chain announced that starting in October, 82 locations in Los Angeles and Chicago would accept returns for some items bought through Amazon. The news follows an announcement earlier this month that 10 Kohl's stores will begin selling Amazon devices, including the Echo smart speaker system.
Investors have celebrated the news, with Kohl's shares rising after each announcement.
"All told, we like the moves Kohl's is taking as it continues to think outside the box and forward think on how to evolve in today's quickly changing backdrop," Chuck Grom, an analyst at Gordon Haskett, wrote in a note to investors Tuesday morning.
However, looking at the longer-term impact of some of Amazon's partnerships reveals some reason for concern.
Companies like Borders and Target that partnered with Amazon to help build their e-commerce business in the early 2000s found themselves less than a decade later lacking the sufficient online experience and infrastructure necessary to keep up with the competition.
"Kohl's has to tread a very thin line partnering with Amazon," Cooper Smith, head of Amazon research at the digital business firm L2, told Business Insider. "Retailers like Borders have partnered with Amazon and, much to their demise, it ended up hurting them. History very well could repeat itself here."
One case study of an Amazon deal gone sour involves another company in the news this week: Toys R Us, which filed for bankruptcy protection on Monday night.
In 2000, Amazon and Toys R Us announced a partnership in which Amazon would sell toys from Toys R Us, to the exclusion of other companies. In exchange, Amazon became Toys R Us' sole online presence — ToysRUs.com redirected to Amazon.com.
"The pact was widely heralded as an example of how young internet companies like Amazon would soon be tying up with 'bricks and mortar' retailers to mutual benefit," The Wall Street Journal reported in 2006. "Instead, the deal has turned into a case study of how quickly promising alliances can turn into acrimonious business disputes as companies adjust to the shifting realities of the web."
In 2003, Amazon began selling toys from other retailers — something that the e-commerce company argued was within its rights and that Toys R Us argued was a violation of the companies' contract. In 2004, Toys R Us sued Amazon, seeking $74 million in damages and alleging the e-commerce company violated the exclusivity agreement. Amazon countersued for $4.71 million, saying Toys R Us failed to keep items in stock on the site.
(Flickr / Mike Mozart)
Toys R Us won the case — and finally launched a website — in 2006, though the judge did not award any monetary damages.
Since it was taken private in 2005, Toys R Us has struggled to compete with both its e-commerce and its brick-and-mortar competitors, like Target and Walmart, that have built up their online business.
Kohl's partnership with Amazon is not the perfect comparison to the doomed Toys R Us deal. For one, Kohl's is surrendering less than Toys R Us did.
"I think this specific deal with Amazon does make sense though for Kohl's, because the whole premise is to get shoppers back into its stores — and if it's Echo's or Amazon returns that help, then so be it," Smith said.
The Amazon-Toys R Us deal, however, was also applauded in 2000. At the time, the importance of online sales to the toy industry was unclear, and it was far from obvious how all-encompassing Amazon — then known primarily as an online bookseller — would one day become.
Now Amazon is expanding into the brick-and-mortar business. With physical bookstores and grocery stores, as well as its acquisition of Whole Foods, Amazon isn't going to stay online. And by partnering with Amazon, Kohl's may be giving its competitor an advantage that could end up hurting its business in the long term.
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