52 Sunday, January 12, 2020 09:43

Kohl's Amazon Partnership Is Looking Like a Bust

In 2017, Kohls (NYSE:KSS) made a surprising move. The mid-market department store chain said it would accept Amazon (NASDAQ:AMZN) returns at a handful of its stores. At the time, it seemed like an odd move, as Kohls essentially looked like it was doing Amazon a favor by processing and packaging customers returns.

Kohls also allowed Amazon to set up in shop in stores, selling products like Echo devices.  After testing the Amazon returns program at 82 stores for nearly two years, Kohls expanded it nationwide in 2019, apparently pleased with the results. At the time, CEO Michelle Gass said, This new service is another example of how Kohls is delivering innovation to drive traffic to our stores and bring more relevance to our customers.

Image source: Kohls.Kohls doesnt appear to be taking any direct payment from Amazon to handle its returns (if it does, it hasnt said so), and its consistently argued that the partnership would improve foot traffic. The additional traffic is clearly the biggest, and maybe only, benefit Kohls is getting from the deal.

Investors have generally applauded the partnership. Shares jumped 12% last April, hitting whats now its 52-week high, when the retailer said it would roll the returns program out nationwide over the summer. However, after being in effect for the full third quarter and the holiday season, the collaboration seems to be doing little to help Kohls results.

So far, not so goodKohls stock fell as much as 10% following disappointing holiday sales results for the November and December period. Comparable sales slipped 0.2% year over year, and the company said earnings per share would come in at the low end of its prior range of $4.75 to $4.95. That EPS forecast was down substantially from the $5.

80 to $6.15 management called for at the beginning of the fiscal year. This came as an especially unpleasant surprise, because management had spent so much time talking up the Amazon partnership. Here are a few quotes from CEO Michelle Gass on the third quarter earnings call in November:We continue to be very pleased with [The Amazon returns programs] overall performance, and based on the results we are seeing, we remain confident that it will have a positive contribution to operating income in 2019.

We are very much looking forward to the holiday season, which will be the first with Amazon returns in stores nationwide.We will have Amazon returns in stores nationwide this holiday for the first time, which will drive additional traffic into our stores.Despite that optimism, comparable sales in November and December actually declined, which the company blamed on poor performance in womens apparel.

Its unclear if management was happy with the Amazon returns program during the period, but even if it did help lift traffic, it didnt do enough to offset challenges in other areas. It also seems unlikely that the program boosted operating income, given the cut in earnings guidance. A pound of fleshKohls may be drawing some benefits.


News Code: 376992  |  Motley Fool
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