Retailers are teaming up and getting creative to drive traffic

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Any brand partnership today brings speculation of potential “wins” — especially so when it comes to tactics for driving in-store traffic and competing with Amazon.

Sometimes, though, the deal appears to be on another playing field altogether. And that can draw a whole host of curious onlookers, watching for the next move.

During an earnings call in March, department store Kohl’s announced that it would begin a pilot effort with supermarket chain Aldi. Building on the success of its “standard to small” rightsizing initiative, Kohl’s said it would rightsize roughly 12 more stores, including a five- to 10-store experiment with Aldi.

“We believe the opportunity to leverage our real estate through this effort has benefits on both the top line with increased traffic and the bottom line through expense offsets, both fixed and variable,” then-CEO Kevin Mansell said during the call.

Media reports initially said the partnership would be a store-within-store concept, perhaps in direct response to the recent Amazon and Whole Foods Market merger. Certainly, there would be additional opportunities to compete against the likes of Target and Walmart, taking advantage of the fact that consumers typically need groceries more often than clothes.

Aldi, however, offered a follow-up from spokeswoman Kate Kirkpatrick: “As we continue with our aggressive growth plan to reach 2,500 stores by the end of 2022, we’re exploring innovative real estate strategies that will support our continued growth and expansion. To bring more Aldi stores to the convenient locations our shoppers desire, we’ve worked with Kohl’s and identified a handful of new stores that will be adjacent to existing Kohl’s locations. This is simply a mutual real estate decision — both stores will operate independently and have separate entrances.”

There’s an additional element to consider: In the future, there may be alternative neighbors beyond Aldi — even beyond grocery.

“We’re focused on traffic-driving retailers with good strong balance sheets and outlooks,” Mansell said on the call. “So certainly, the one that we’re doing the pilots with falls into that category. Generally, I think we would all say that the filters start at places like groceries, supermarket chains, just because they drive a lot of traffic, but it’s certainly not limited to that. There are other sectors that I think are good pairings with us. People in the fitness category, for instance, I think are a great combination with Kohl’s, and there’s many others. But it’s traffic drivers, strong brands, strong balance sheets where we know that we can coexist together for a long time.”

KEEPING THINGS CASUAL?

Some answers, perhaps, but still a lot of questions.

Will this continue to be just about real estate? Will there eventually be some sort of cross-pollination of brands, customer data, rewards and/or marketing? Will this sort of relationship — more casual date, perhaps, than brand marriage — make a difference in the long run in terms of the one-stop-shop experience for consumers?

The retail landscape has seen its fair share of budding relationships of late: Think of the Walmart collaboration with BuzzFeed on kitchenware, Nordstrom offering Anthropologie Home and recent talks of opening Ace Hardware locations inside Kroger stores. And who hasn’t visited a Starbucks or Caribou Coffee while shopping for food?

“Maybe what they’re doing is dabbling,” says brand expert Mitch Duckler, managing partner at marketing and brand strategy consultants FullSurge. “It might start off fairly inconspicuously, where they’re just co-locating, if you will, in close proximity. If, over time, the connection makes sense from a consumer and commercial perspective, maybe they do become integrated.”

A store-within-store concept from the start would carry more risk, he says, “because you are communicating on the surface that these brands are connected, intertwined … . But if you’re just sharing a wall or parking lot, that risk is far less.”

The possibilities run the gamut from some consumers not knowing there’s any connection at all to being “very explicitly, overtly connected in meaningful ways,” he says.

Kohl’s declined to comment further following the earnings call. As for Aldi, “Supermarket Guru” Phil Lempert says he’s not surprised there has been no big media splash with the news.

“It’s the Aldi/Trader Joe’s way,” he says. “They do everything under the radar … .

Aldi in particular is close-mouthed.” It could be, too, that it will require “a lot of work” to turn Kohl’s property into a grocery, including proper electric, water, drainage and the like. The entities may be moving slowly because it will be “operationally more difficult than building a store from scratch,” he says.

Kohl’s is maintaining focus on a couple of core objectives: driving traffic and operational excellence.

In the meantime, Coresight Research (formerly Fung Global Retail & Technology) released a report about the Kohl’s and Aldi venture, terming it a “win-win for an overspaced department store and a high-growth grocery chain.”

From the report: “Kohl’s is uniquely positioned among the top tier of U.S. department store retailers to make this move, as many of its stores are located in the kind of open-air centers in which Aldi prefers to locate its own stores.” Kohl’s operates 1,158 stores in 49 U.S. states, and Aldi is in growth mode, with most of its current properties in the eastern U.S. and California. Coresight Research also points out that Aldi’s average store size is roughly 20,000 square feet, about 23 percent of a typical Kohl’s full-range, 88,000-square-foot store.

“This move further underlines our view that Kohl’s seems to be leading the pack in terms of out-of-the-box thinking,” the report says. “Late last year, some Kohl’s stores began selling Amazon technology devices, such as the Echo, and accepting returns on behalf of Amazon. Now, Kohl’s is tackling the issue of excess space creatively. This approach, combined with the fact that Kohl’s has limited exposure to underperforming regional malls, is likely to support the company’s sustained outperformance compared with some of its major department store peers.”

POSSIBILITY OR MISSED OPPORTUNITY?

Chris Taylor is CEO and founder of Square Root, which offers the store relationship management platform CoEFFICIENT. The platform helps retail and automotive companies understand the strengths and weaknesses of individual stores through more conversational and anecdotal use of data, empowering field teams to change in-store behaviors that drive performance. As such, Taylor is greatly interested in the amount of information brands share with each other — or not.

Recently sitting with the president of a major retail brand, he says, he was asked if the CoEFFICIENT platform could tell her who was buying her brand’s products at various retailers. It was, she said, information she “just couldn’t get.”

“And we sit back and say, ‘Wow. You’re trying to compete with Amazon, and you don’t know who’s buying your products and what the basket size is, and all of those very basic things. How are you going to win with that vacuum of information?’”

With Aldi and Kohl’s, he sees great possibility — in addition to potential missed opportunity. Partnering solely on a real estate level may lead to cost reduction and greater efficiencies, “which can move the needle a little bit and basically buy you time. But if you don’t understand how to raise the top line, how to get those synergies to make the experience better, and make your customers come back and come back more often, then it’s not really going to sustain.”

He mentions the Whole Foods/Amazon venture as primarily an extension of Amazon’s analytics.

“Hopefully someone at least has a vision for this,” Taylor says. “We know how these things go. Once everything gets moving and the train leaves the station, it’s hard to go back and change the strategy and the direction of the project, if you didn’t have that grander vision when you first started out.”

For now, Kohl’s is maintaining focus on a couple of core objectives: driving traffic and operational excellence.
“In the area of store optimization, we’re clearly seeing the benefits of amplifying the role and relevancy of our stores while focusing on improving their productivity in an omnichannel world,” Mansell said on the call. “We believe in the power of our bricks-and-mortar stores in that future world.”

The standard-to-small strategy has improved inventory productivity, and merchandise margin has improved “well above the average store.” Standard-to-small stores, Mansell said, bring a phenomenal improvement in customer engagement scores, driven by improved findability, ease of shopping and standards in housekeeping. The plan is to roll out the standard-to-small strategy to an additional 200 stores in 2018.

Supermarket Guru Lempert will be keeping an eye on the ways Kohl’s uses marketing and merchandising to encourage shoppers to drop in before or after their trips to Aldi. Branding expert Duckler, meanwhile, is curious for signs of research showing that this new proximity is important, and that it will increase the likelihood consumers will shop at both. In some cases, he says, efforts aimed at short-term business results can be at the expense of longer-term business health and equity — especially when it leads to brands being less distinguishable. A true win here, he says, would consider both tangible business metrics and the softer metrics of brand.

“How do consumers’ perceptions of these two brands change?” he asks. “Do they become more favorable because they are associated with one another? Can one brand actually boost the perception of the other? These are softer things, and they may get overlooked. But in the long term, they are arguably more important than any of the other metrics that are more short-term focused.”

It is the beginning of a conversation, to be sure — but only the beginning. The relational sport of retail continues to deliver new ways of getting “hitched.”

“I think we’re going to see a lot of these creative partnerships in retail,” Taylor says. “Change is going to be the constant.”

Fiona Soltes, a freelancer based near Nashville, Tenn., loves a good bargain almost as much as she loves a good story.

IMAGE COURTESY OF KOHL’S. ©2017 KOHL’S DEPARTMENT STORES, INC.

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