What's going on?
Kohl’s, the American department store, said on Thursday that a low-cost German grocer, Aldi, would be getting floor space in 10 of its stores – a test project designed to decrease Kohl’s footprint and increase its footfall.
What does this mean?
Like many big ol’ department stores, Kohl’s has a problem: it’s got too much space. In an era where many do their shopping online, having floors and floors of merchandise is unnecessary. It’s far better to sub-let that space to other retailers that could bring in additional traffic, giving Kohl’s the opportunity to shift more Fruit of the Loom while its partner sells fruit of the tree. Aldi, which is big in Europe but only recently launched a multi-billion-dollar expansion in the US, is jumping at the opportunity.
Why should I care?
The bigger picture: Inventory management is even more important than it used to be – and a small store footprint helps.
Similar to Macy’s recent results, Kohl’s made more profit than Wall Street expected in its recent quarter largely thanks to better management of its inventory. By keeping this lean, Kohl’s runs less risk of being left with clothes it can’t sell. But lean inventory doesn’t suit huge stores: the products need to be neatly and compactly displayed – hence the need to reduce floor space.
For markets: Physical stores aren’t dying (yet) – they’re just getting much smaller.
While delivering many goods ordered online has become relatively straightforward, even Amazon has struggled to master the “last mile” when it comes to food (leaving yogurt in your “safe spot” doesn’t quite work…). Kohl’s is astutely trying to partner with retailers that have suffered less from digital disruption, like grocers (and perhaps fitness centers), to help draw in customers to its physical stores – where they may be tempted to buy some of its own stuff.