Thinking Outside the Retail Box

“Amazon is killing brick-and-mortar” goes the popular narrative. Apparently Kohl’s didn’t get the message as the predominantly brick-and-mortar company recently announced a pilot program that will allow free returns of Amazon items at 82 stores in the Chicago and Los Angeles metro areas. This comes shortly after an earlier announcement saying the company would sell Alexa-enabled home speakers, Fire TV’s, tablets, and other Amazon-branded products.

While unconventional to some, I admire the strategic initiative being taken by the Kohl’s management team. Despite the overlap in certain product categories, the company is taking the gamble that the potential for increased store traffic will outweigh any negative sales consequences of partnering with the online retailer.

Kohl’s, like many of the troubled department stores, is largely undifferentiated in their product offerings. Shoppers don’t come for the exclusive product lines or high-quality offerings. The same or similar items can be bought elsewhere, or online, at a comparable or cheaper price.

Their greatest asset is geographic convenience and a wide, on-the-spot product selection. In this light, product sales becomes a numbers game. Getting people in the door and driving impulse purchases through product assortment, competitive prices, and effective store displays is Kohl's biggest opportunity as a result of this deal.

From a broader macro perspective, Amazon’s looming presence in physical retail, and their dominance of online selling, has prompted distinct strategic responses from brick-and-mortar retailers. Though the results are to be determined, the strategies fall into three wider buckets:

1.      Head-to-Head Competition

2.      Adjacent Competition

3.      Partnership

Head-to-Head Competition

A daunting prospect, trying to beat Amazon at its own game is challenging. Few companies in the world have the resources, ambition, and clout to be a meaningful competitor in online commerce.

As the largest company in the world by revenue, Walmart is one of those few companies. After trying to introduce various Prime-like models and integrated physical-web offerings, the company showed their commitment to online commerce with their $3B purchase of Jet.com.

Through the startup’s technology and platform, coupled with Walmart’s customer base and physical presence, the company hopes that it can create a combined multi-channel experience that can effectively compete with Amazon’s core online sales offering.

Adjacent Competition

While boosting their online presence and prioritizing online sales, Target has nevertheless taken a slightly different approach than Walmart to the Amazon movement.

The company has moved beyond just price-based competition by working with young, upstart brands that have traditionally been exclusively direct-to-consumer (DTC) and are now seeing the benefits of a physical distribution model.

Specifically, Target is one of the few brick-and-mortar retailers of mattress company Casper and razor company Harry’s. Both sides benefit from this arrangement.

DTC companies get distribution without the overhead of running their own locations, unlike a company like Warby Parker, which has recently branched out into physical locations.

Target gets the opportunity to sell millennial-focused brands and differentiated offerings from competitors. By partnering with these types of companies, it enhances their brand association – young, tech-forward, cutting edge – and brings a highly coveted generation through their doors.

Partnership

A third competitive strategy is the partnership model. “If you can’t beat them, join them” is the phrase that best captures this mentality. The fine line for retailers is to determine how, or if, there can be value-add for them rather than simply benefits for Amazon.

Kohl’s, as already discussed, is using partnership as a means to get people in the door with the hope that an Amazon return can spur a Kohl’s purchase. At the very least, the move creates exposure to the brand and an opportunity to introduce consumers – current Kohl’s customers or not – to the stores, product offering, and experience of shopping at their locations.

Conclusion

As 50%+ shoppers start at Amazon when online shopping, a targeted strategy is needed to compete in any facet of retail that the company is involved in (fashion, household goods, electronics, food, to name a few).

The question then becomes, do you go after the 55% that are starting at Amazon, or the 45% that are not. What does that 45% look like from a customer profile perspective? What needs are they filling elsewhere, and why?

Kohl’s has made a strategic decision to target the 55% with the hope that those online shoppers will see value in the some of the benefits of brick-and-mortar that only Kohl’s, not Amazon, can offer.

There’s no guarantee of success, but what is certain is that businesses that continue to operate under outdated business models without taking into consideration shifting retail dynamics will continue to suffer at the hands of their forward-thinking competitors.