Most retailers fear Amazon (AMZN) – Get Amazon.com Inc. Report.
That makes sense because the online giant has become so large it has all sorts of advantages over much of its competition. It can offer lower prices and next-day delivery across pretty much every type of merchandise.
Amazon has also used its size to move into nearly every area its rivals sell. You can buy Amazon electronics, home goods, furniture, and yes, clothing. The problem is that while you might buy a charging cable or even an end table without touching it, you may not feel the same way about clothing.
People tend to like to not only see clothes before they buy them but also to try them on. That’s something Amazon can’t facilitate all that easily. The retail leader sells everything from yoga pants to bathing suits and underwear, but it has struggled to gain traction with those products.
A virtual storefront simply doesn’t work as well as a real one when it comes to clothing. That’s where Kohl’s (KSS) – Get Kohl’s Corporation Report could fill a vital role for Amazon.
Kohl’s Board Passed on a Sale
The Kohl’s board of directors recently completed a process that resulted in the company not being sold. That’s somewhat surprising as the company had entered into negotiations with Franchise Group for a sale.
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“After engaging with more than 25 parties in an exhaustive process, FRG emerged as the top bidder and we entered into exclusive negotiations and facilitated further due diligence,” Board Chair Peter Boneparth said. “Despite a concerted effort on both sides, the current financing and retail environment created significant obstacles to reaching an acceptable and fully executable agreement. Given the environment and market volatility, the Board determined that it simply was not prudent to continue pursuing a deal.”
Boneparth made it clear that the retailer remained open to a deal, but that the current offers did not maximize shareholder value.
“Kohl’s is a financially strong Company that generates substantial free cash flow and has a clear plan to enhance its competitive position and improve performance over the long term,” Boneparth added.
Kohl’s and Amazon Complete Each Other
Amazon was not among the bidder for Kohl’s, but the two retailers already work together. You can bring your Amazon returns to any Kohl’s location and that relationship has been a positive one for both companies.
Kohl’s and Amazon, however, could do a lot more together. The brick-and-mortar chain has suffered from not evolving its merchandise mix in recent years. That has allowed Target (TGT) – Get Target Corporation Report — which has invested heavily in owned-and-operated brands along with celebrity partnerships — to move past Kohl’s as a clothing destination.
Amazon could solve that problem while also fixing one of its own. The online giant has dozens of clothing lines that would benefit from being exposed in a physical store. In theory, people could see Amazon’s clothing in a Kohl’s, touch it, try it on, and later buy more of it digitally.
These two retailers actually fix each other’s problems. Kohl’s needs refreshed merchandise and Amazon desperately needs a physical place to show off the clothing brands it has heavily invested in. Amazon can, of course, also always use more physical locations to use for logistics and to fill in its network.
Kohl’s would also benefit from having an owner with buying power that equals if not surpasses Target and Walmart (WMT) – Get Walmart Inc. Report. These two companies make sense together and are actually stronger together.