Amazon may be eyeing Target - or Kohl's - for its next takeover

Suzette Parmley/The Philadelphia Inquirer - Speculation started last month that online juggernaut Amazon was considering Target Corp. for a takeover and adding “department store” to its list of conquests.

But Target may not be Amazon’s only target, say retail observers.

Last October, Amazon launched a pilot in 82 Kohl’s stores in Los Angeles and Chicago, where its customers can drop off online returns, which are shipped back to Amazon for free by Kohl’s employees.

“This is a great example of how Kohl’s and Amazon are leveraging each other’s strengths – the power of Kohl’s store portfolio and omni-channel capabilities, combined with the power of Amazon’s reach and loyal customer base,” said Richard Schepp, Kohl’s chief administrative officer, in a statement announcing the pilot partnership in September.

 DREAMSTIME

Last fall, select Kohl’s stores began accepting Amazon returns and shipping them back for free. Some think Amazon is preparing to take over a department store. It acquired Whole Foods last year to get into the grocery sector.

Kohl’s also announced a new “Amazon smart home experience” where 10 of the 82 Kohl’s stores will enable customers to buy Amazon smart-home devices and services directly from the online giant. Amazon will become a store within a store inside Kohl’s.

Do these dual efforts signal some future hookup?

“I, too, think Amazon is seriously looking at the `department store` space,” said Phoenix-based retail consultant Jeff Green, who counsels major retailers on strategy. “Though Target has been the rumored Amazon target – and that could be a possibility –  might they also be looking at Kohl’s, which would be much less expensive to acquire?”

Amazon’s ambition continues to amaze. It is forming a new company with Warren Buffett and JPMorgan to lower health-care costs of their employees, a move that shook up health-care stocks last week.

Amazon also bought Whole Foods last year in a blockbuster deal worth $13.7 billion, giving it an additional 460 stores for its distribution network.

So making a play for a major department store such as a Target or Kohl’s – each with a huge customer base and more than 1,000 stores in the U.S.  (Target 1,834 and Kohl’s 1,100 ) isn’t far-fetched, say analysts, especially as Amazon’s retail arms raceintensifies with Walmart, the nation’s largest land-based merchant with more than 4,600 U.S. stores alone.

While Amazon is expanding its brick-and-mortar firepower, Walmart has been on a buying spree of online companies, such as Jet.com and men’s clothier Bonobos, to help narrow the digital shopping gap with Amazon.

Some see Amazon’s pilot with Kohl’s as a prelude to more growth.

“It is a way for Amazon to provide more convenience for its customers,” said Moody’s senior retail analyst Charles O’Shea. “Amazon is trying to increase its brick-and-mortar position to better compete with Walmart, Target, etc., as U.S. retail sales remain heavily skewed toward brick-and-mortar at roughly 87 percent to 13 percent.”

AP

Retail experts think Amazon is eyeing a department store chain, such as a Target or Kohl’s, each with more than 1,000 stores, for its next acquisition.

The Amazon–Kohl’s pilot may lead the two companies to work more closely in the future, said Ben Conwell, head of Cushman and Wakefield’s eCommerce Advisory Group for the Americas.

“The store-within-a-store where Amazon employees are selling Amazon-branded goods, and the complementing Amazon returns acceptance pop-ups in-store by Kohl’s employees appear to be a win-win,” he said. “Kohl’s is enjoying the additional trafficdraw for both sales and returns. Amazon, in turn, enjoys the benefit of what could eventually grow to be 1,100 additional physical stores for use by both existing customers, as well as making Prime membership convenient for Kohl’s shoppers.”

Conwell knows a lot about Amazon. In his previous gig, he was Amazon’s head of North America logistics real estate. For four years he oversaw the expansion of 35 million square feet of Amazon fulfillment and transportation facilities.

“We should not be surprised if the initial pilot is expanded to considerably more locations,” Conwell said. “It is not beyond possibility that the relationship may expand to include offering Amazon order pick-up at Kohl’s locations. Kohl’s could offer Amazon up to twice as many additional physical pick-up points as it acquired with the Whole Foods acquisition.”

Successful retailers are using “physical locations to make customer pick-up more convenient and to minimize costly last-mile deliveries,” he said.  Amazon could expand integration of services with more large physical retailers or make an even larger acquisition. “At just over $11 billion in market cap, Kohl’s trades today at less than the Whole Foods acquisition price.”

 SUZETTE PARMLEY

A Kohl’s store in Langhorne. Amazon returns are now being accepted in select Kohl’s stores in Los Angeles and Chicago as part of a pilot program.

A sales clerk behind the online pickup counter at a Kohl’s in Bensalem said last week that the free Amazon returns program could be a harbinger of things to come.

“We don’t have it yet,” she said. “Depending on how well it does in California and Illinois, Pennsylvania and other states could get it, too.”