Amazon and Kohl's Just Got Even Closer

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Earlier this month, Kohl's (NYSE: KSS) investors were encouraged by the department store chain's intriguing new partnership to sell smart-home products made by Amazon.com (NASDAQ: AMZN). But the two retail giants aren't done cozying up just yet. On Tuesday, Kohl's announced it will soon begin offering free returns for Amazon customers under a program aptly dubbed "Amazon Returns at Kohl's."

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But don't gather your unwanted Amazon merchandise just yet; this is more a pilot program than anything else. It won't start until next month, and even then will be limited to "just" 82 Kohl's stores across Los Angeles and Chicago -- a relative sliver of its more than 1,100 stores in 49 states.

For the millions of people near those locations, however, it should be a pretty slick system. Just bring in your eligible Amazon return to the participating Kohl's store -- whether it's packaged for shipping or not -- and Kohl's will pack it, ship it, and return it to Amazon free of charge. Kohl's will also provide designated parking spots near each store entrance for customers utilizing the service.

What Amazon and Kohl's have to gain

It's no mystery that concerns over the hassle of returns are a key point of hesitation for consumers who consider shopping online. And given Amazon's lack of a physical store presence, the value proposition of such an agreement is easy to measure.

"Amazon Returns at Kohl's creates a convenient location for Amazon customers to return eligible Amazon.com merchandise," stated Amazon's director of worldwide customer returns, Shivi Shankaran. "Teaming up with Kohl's provides an incredible opportunity to pair our world-class return experience with a great shopping experience, expanding our service options to our customers in the Los Angeles and Chicago areas."

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But what, exactly, does Kohl's have to gain?

For one -- keeping in mind financial terms of the program weren't disclosed -- it seems safe to assume that Amazon is making it worth Kohl's while by footing the bill for any returns packaged and shipped from Kohl's locations. What's more, assuming at least some of those customers opt to stick around after making the trip to complete their Amazon returns, Kohl's should enjoy the benefit of incremental foot traffic to its brick-and-mortar locations.

Richard Schepp, Kohl's chief administrative officer, added: "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 omnichannel capabilities combined with the power of Amazon's reach and loyal customer base."

But Kohl's could also lose...

I'd be remiss if I said Amazon Returns at Kohl's was entirely risk-free for both companies. More specifically for Kohl's, removing one of the largest barriers to shopping online at Amazon.com -- that is, the relative inconvenience of returns -- negates one of the key competitive advantages it enjoys as an omnichannel retailer. This could, in turn, accelerate the growth of Amazon's core retail business -- at the expense of Kohl's, if the resulting incremental traffic proves immaterial.

At the same time, Kohl's could be making a calculated bet that as a partner to Amazon -- the continued growth of which increasingly appears inevitable -- the majority of retail market-share losses will be incurred by its direct competitors.

As it stands, the fruits of this limited partnership probably won't be evident for at least a couple of quarters. But at first glance, it seems the only sure winner is Amazon.com.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.