Kohl's expands Amazon return pilot to 100 stores, sees upside

Amazon's partnership with Kohl's on package returns appears to be paying off for both parties. Kohl's has expanded its pilot with Amazon to 100 stores, according to CEO Michelle Gass.

In September, Kohl's and Amazon said they would partner to offer Amazon returns in select stores. The two companies have partnered in various omnichannel moves. For instance, Amazon has a few store-in-store concepts inside some Kohl's locations.

Fast forward to today and Kohl's appears to be seeing additional foot traffic in stores with Amazon returns in place. And Amazon is part of a broader e-commerce, omnichannel and loyalty program at Kohl's, which delivered stellar second quarter results and solid inventory management.

Kohl's reported better-than-expected second quarter earnings of $292 million, or $1.76 a share, on revenue of $4.57 billion, up 4 percent from a year ago. Same store sales were up 3.1 percent and gross margins increased 42 basis points. Kohl's also raised its fiscal 2018 earnings outlook to $4.96 a share to $5.36 a share.

Like other retailers, Kohl's is melding its in-store and digital experiences. Kohl's is also benefiting from the demise of competitors such as Sears and struggles of JC Penney. Programs like Amazon returns bring in traffic and can lead to more customers for Kohl's. Gass said on the earnings conference call:

This is a big deal for us and for Amazon. We are studying it very closely. As you know, 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.

The Amazon pilot has been up for about 9 months and Gass noted that Kohl's is optimistic about the customer experience gains for both sides.

Kohl's is also running full throttle on IT to build out e-commerce capabilities, programs like ship to store and migrating operations to the cloud. Gass said that Kohl's digital sales are in the low double-digits as a percentage of the total revenue pie with plenty of upside to be had.

In the big picture, Kohl's sees more benefit to being an Amazon partner than a competitor. Meanwhile, the two companies are data focused and seem to mesh well. It makes you wonder if Kohl's couldn't become a linchpin to Amazon's brick-and-mortar expansions. Kohl's with Whole Foods could put Amazon in multiple physical retail locations.

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