For the second time in six months, Kohl’s has an unlikely new roommate. Back in October, Kohl’s announced that it would play host to an Amazon Smart Home Experience in 10 stores, while processing Amazon returns in another 80. Now the company has revealed that another 10 stores will lease space to Aldi, the German discount grocery retailer. Kohl’s has spent the last two years shrinking many of its stores, and has been on the prowl for a tenant to occupy the newly vacant space. This is the space Aldi will occupy in up to 10 locations starting later this year. Here are the answers to the key questions about this unlikely partnership.

What is Kohl’s looking to gain?

Traffic. Kohl’s believes its 1,000-strong fleet of stores in off-mall power centers are one of its biggest assets, especially given the recent performance of mall-based retailers. This is why it has been shrinking stores instead of closing them. Kohl’s knows that its shoppers value its convenient locations, and consequently has invested heavily in Buy Online Pickup In Store capabilities that allow shoppers to collect in-stock merchandise within two hours after making an online purchase. Unlike the Amazon partnership featured within Kohl’s, Aldi will be completely separate from the Kohl’s experience, but Kohl’s is hoping that adding a food retailer next door will drive more regular footfall as shoppers try to accomplish more in any given shopping trip.   

This is also undoubtedly a financial play. Kohl’s knows its stores are an asset, but also that they need to be more profitable. It is looking to boost its bottom (and top) line by operating smaller stores more efficiently and creating a revenue flow beyond merchandise sales.

Why Aldi?

The move is another example of discounters experimenting with new concepts and locations to fill gaps in their strategy. The size of the space available certainly suits Aldi more than other grocery models. However, the need to perhaps satisfy different shopper needs or profiles at these locations will add complexity to the model, either through additional staff requirements, unique merchandising planograms, tailored ranges, or a reduced non-food range. Aldi is well versed in flexing its store format to fit unique locations throughout Europe and can use this pilot to import its expertise to one of its growth markets. Interestingly, having already shown a desire to test grocery delivery though its partnership with Instacart, Aldi may be considering using the Kohl’s pilot as a means to test its Click and Collect capabilities.

Who’s on notice?

Target. The retailer is stepping up its style game to steal share from the likes of Kohl’s, but has always struggled with food and fresh. Should Kohl’s and Aldi crack this code, albeit not under the same roof, Target—and even Meijer and Kroger Marketplace who have similarly invested more in their apparel offers—could experience heightened competition for some of its core shoppers.

What could come next?

Kohl’s is shopping around before focusing its investment with any one partner. While feedback has been positive on the Amazon relationship so far, Kohl’s is exercising patience when it comes to expanding the relationship. The same will likely be true of Aldi and any other partnerships Kohl’s may form. Outgoing CEO Kevin Mansell has dropped some heavy hints that he thinks a fitness center would pair well, especially given Kohl’s strong focus on active and wellness, but doesn’t seem to have any takers yet. Look for more unique alliances and partnerships from Kohl’s this year as they look to chart their course forward.

Stay tuned for Kantar Consulting’s analysis of the shopper dynamics of this partnership leveraging our proprietary ShopperScape® data.

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