Go back a few years, and things seemed to be going OK at Kohl's. A decent customer loyalty program. Effective inventory management. And good locations that had helped shield the store from the brunt of the retail apocalypse.

At the same time, though, Kohl's wasn't winning over any new shoppers. Its customers were growing older, but revenue was at a standstill. And the company was lagging far behind Amazon (and other competitors like Target) in the e-commerce wars.

Fast forward to today: Kohl's just reported two consecutive years of positive sales growth,
its largest increase since 2010. Earnings are better than Wall Street expected, and stock price is rising.

How did Kohl's do it?

There are a variety of moves that have had an effect on Kohl's return to relevance, but there's one that stands out most:

Kohl's decided to partner with Amazon.

Since October of 2017, Kohl's started a radical initiative: It began accepting free returns of Amazon products.

That means customers can walk into select Kohl's stores and return something they bought on Amazon, even without the original packaging and box. Kohl's then uses its own resources to package the product and its logistics infrastructure to ship it back to Amazon.

"I think that the most important thing that we're seeing is how excited our customers and the Amazon customers are about this service," Kohl's CEO Michelle Gass recently told investors. "It's really unique. It takes a lot of the hassle out of returning items."

A hundred stores currently participate in the Amazon return program. In addition, Kohl's now sells select Amazon products--such as the Echo line of voice-activated virtual assistants and Kindle readers--in more than 200 stores.

"The big idea is that this is teaching us to think differently," Gass says.

"Think differently."

Kohl's knew Amazon was disrupting the retail industry. It knew there was no way to beat Amazon at its own game.

So why not find a way to offer Amazon value, while benefiting from that disruption?

Remember that Kohl's knows how to retain customers using a well-established rewards and loyalty program. Its problem was that it struggled to attract younger shoppers and expand its customer base. 

Younger generations are already accustomed to buying on Amazon. By solving a pain point for those customers, Kohl's is getting them into their stores. (Analysts found stores that participated in the Amazon return program averaged 13.5 percent higher traffic than stores that didn't, according to a CNN report.) 

And once those customers are there, they're more likely to buy other products they need or want, directly from Kohl's.

The bold move is a great example of how traditional retailers are using out-of-the-box thinking to leverage their strengths. (Best Buy is another example of a company that is using brilliant strategy to help it thrive in the age of Amazon.)

But the Amazon partnership is just one of a flurry of ideas Kohl's has instituted to shake things up.

For example, Kohl's is one of the few major retailers that downsize not by closing stores, but by shrinking them. Kohl's does this by stocking its stores with less, and then subletting remaining space to partner businesses. Fast-growing grocer Aldi opened its first store in a downsized Kohl's last month. And just last week, Kohl's announced it would be leasing out space to Planet Fitness next to 10 of its stores in 2019.

The goal is to produce a win-win scenario: Kohl's receives rental income, and both businesses benefit from increased foot traffic. 

Creative ideas like these are just one reason Gass ended up with Kohl's in the first place. Previous Kohl's CEO Kevin Mansell wanted a successor who could take a different approach to retail and who wasn't afraid to take risks. Gass spent 17 years with Starbucks and is credited with helping create that company's multibillion-dollar drink: the Frappuccino.

Time will tell if Gass is able to keep things moving in the right direction. But for now, her company's moves seem to be paying off:

Embrace the future. Take smart risks. Leverage your strengths.

And when you can't beat 'em, join 'em.

Published on: Mar 13, 2019
Like this column? Sign up to subscribe to email alerts and you'll never miss a post.