The deal makes sense on a variety of levels and it's actually surprising it hasn't already happened.
July 22, 2021
Amazon (NASDAQ: AMZN) has gone big before when it comes to buying a physical presence. The online retail leader purchased Whole Foods for $13.4 billion in 2017. That move gave the company an instant niche in grocery and more physical locations to allow for order pickup and drop-off.
Whole Foods also gives Amazon direct exposure to, well, the type of people who shop at Whole Foods. That’s a higher-end audience that it can lure with added Prime benefits, making the grocery chain both a way to add Prime members and a way to keep them.
This deal was a win for the company and it’s actually part of a broader strategy to expand the online giant’s grocery efforts. Those plans now include same-day delivery from Whole Foods and an Amazon-branded grocery service (in some markets) to the chain’s efforts to build out a more moderately priced grocery offering.
Buying Whole Foods helped Amazon cut the line a bit when it came to gaining a foothold in the grocery space. Buying Kohl’s (NYSE: KSS) would do the same thing in the apparel space. It would also give the online retailer a needed way to display its many owned and operated apparel brands.
Amazon has struggled to establish its many apparel lines across a wide swath of categories. That’s likely because people don’t like buying clothes from unfamiliar brands without getting to touch the material, try things on, and generally give items a quality check.
That’s especially true for women’s underwear and bathing suits — two areas where Amazon has multiple lines that have not achieved much success (though the company does not break out sales figures for any specific category or product).
Kohl’s could also use some new merchandise. Its clothing lines have become tired and Amazon’s brands could help bring people into the chain’s stores to see the new merchandise.
The two companies, of course, already have a business relationship with Kohl’s stores taking Amazon returns. It’s possible that an increased partnership could happen giving Amazon a brick-and-mortar showcase for some of its clothing brands while also helping Kohl’s have exciting new merchandise to show off.
That’s possible, but Amazon could also make good use of Kohl’s real estate portfolio. The retailer has already rejiggered some of its stores to have more backroom space to fill digital orders. That could be another major value-add as the online giant needs to have warehouse space as close to as many consumers as possible in order to continue to expand one-day and same-day delivery.
Kohl’s also has leased space to Aldi (among other companies) at some of its locations. It’s not far-fetched at all to think that Amazon could ultimately buy out those leases or wait for them to add in order to launch its own grocery stores or convenience stores.
This deal makes sense on a lot of levels as it helps Amazon build its owned-and-operated portfolio while giving Kohl’s a relevance it currently lacks. A hookup between these two would also bring added competition to one retail giant and it could hasten the death of another.
One of those impacted companies is an active 7investing recommendation. Click here to find out which big retail player would feel the impact of Amazon buying Kohl’s the most in part 2 of this article.
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