Amazon is a juggernaut across industries and the world's second-most valuable company. But it does have weaknesses. 

Take retail: Jeff Bezos's brainchild company spends half its time figuring out how to deliver purchases quickly for a flood of customers--and returns of unwanted merchandise are a major customer pain point.

On the other hand, Kohl's is nowhere near as big as Amazon, but it has the exact opposite problem. As my colleague Justin Bariso wrote earlier this year, it was "dying a slow death," with lethargic store traffic and an aging clientele.

Now, these two brands have teamed up in way that promises to solve their problems. In short, you can buy almost anything from Amazon, and if you're not satisfied, you can now return it for free--at Kohl's.

It's a pretty creative solution. Here's how it works and why it's so brilliant.

What Kohl's gets out of the deal

Let's start with the Kohl's side of the equation, because it's giving Amazon something very big--and yet there's no indication that there's any money changing hands here.

In fact, in an earnings call earlier this year, CEO Michelle Gass said she expects expenses to increase for Kohl's as a result of the program.

But Kohl's does stand to gain one very important thing it's lacking now: traffic, and especially from younger shoppers. People who would never think of going Kohl's now have a compelling reason to do so, when they want to return something to Amazon.

"Our top strategic priority is driving traffic, and this transformational program does just that. It drives customers into our stores, and we are expecting millions to benefit from this service," Gass said in a statement this week announcing the expansion of the program.

What Amazon gets out of the deal

For Amazon, the benefits are even more straightforward: easier returns, which hopefully will make it more likely customers will buy from Amazon in the first place.

As a secondary benefit, Amazon is simultaneously reducing its overhead if it has another company's people handing its returns for it.

It's not without risks for both companies, though:

  • For Kohl's, there's the risk that people might return things to Amazon, and then turn around and walk out without buying anything.
  • There's also the concern that Kohl's employees could spend an inordinate amount of time handling returns for their competitor company, as opposed to helping customers and checking out their purchases.
  • For Amazon, there's the risk of tying its customer service experience to Kohl's employees, which it likely doesn't have much control over.
  • And, there's also the risk that Amazon could accidentally wind up too successful--either encouraging customers to return products they otherwise might have kept, or even driving too many walk-in sales to its competitor.

That said, Kohl's has been experimenting with this in a pilot program for more than 18 months before announcing Monday that it would expand the Amazon return program to all 1,150 Kohl's stores in the United States.

It's a safe bet that Kohl's thinks it knows exactly much more foot traffic it can expect to get out of this, and how many extra dollars of revenue it can expect to take in from each Amazon returner.

Turning a problem into an opportunity

When Gass announced the rollout she called it, "our single biggest initiative of the year."

It's easy to see why. This seems like the rare opportunity to take something that's a problem for you, recognize how it could be an advantage for someone else, and work out a trade so you both do better.

If nothing else, Kohl's (and Gass) are getting some well-deserved accolades for giving this kind of thing a try. It's not the only creative thing Kohl's has done recently, either. 

Over the last year or two, Kohl's also started leasing excess space to Planet Fitness in some of its stores, and cutting other large, underperforming stores in half, so it can rent out the other sides to Aldi supermarkets.

Will it be enough to survive and thrive in the Amazon age? It's hard to know, of course.

But with these kinds of creative solutions on both sides, it's clear they're not going to go down against much bigger competitors without a fight.

Even if that means cooperating, as much as competing.

Published on: Jul 10, 2019
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