Amazon should forget about building department stores and just buy Kohl’s: analyst

If Amazon (AMZN) truly wants to get into the department store business, it may have an easier option to consider than trying to build out large locations across various parts of the country. 

In fact, the option would be pretty turnkey, fancies one long-time retail strategist.

“Amazon should be out there buying Kohl’s. They’ll get their 1,000 stores in one felt swoop, and they can put anything they want into them. The stores on average are 25,000 square feet bigger than they need to be,” former retail executive and JRK Worldwide Enterprise founder Jan Rogers Kniffen said on Yahoo Finance Live. 

Speculation of this kind isn’t too out of left field for several reasons. 

For one, Amazon appears to have a desire to get into department store retailing.

Amazon plans to open several large retail stores in the U.S. that resemble department stores, The Wall Street Journal reported this week. Some of the first stores are expected to be opened in Ohio and California, the WSJ said. The store size is rumored to be 30,000 square feet, smaller than the 100,000-square-foot typical department store or big box location. 

Last year, Yahoo Finance reported Amazon executives had visited J.C. Penney’s Plano, Tex. headquarters to mull buying some of the stores from the the newly bankrupt department store retailer.

“Why they [Amazon] would want a green field and start building 30,000-square-foot stores is a mystery to me,” Kniffen contends. 

And that brings the discussion to Kohl’s (KSS), which has a four-year relationship with the digital retailer.

Kohl’s inked a partnership to handle Amazon returns in 2017 in a bid to boost store traffic. The relationship has since expanded to encompass Amazon returns at all of Kohl’s 1,150-plus stores. 

Indianapolis - Circa January 2020: Kohl's Retail Store Location. Kohl's is accepting Amazon returns free of charge

Indianapolis – Circa January 2020: Kohl’s Retail Store Location. Kohl’s is accepting Amazon returns free of charge

The tie-up appears to be going well, although many retail insiders would agree it hasn’t changed the game for Kohl’s top and bottom lines. 

“On Amazon, they’ve been great partners. It goes back to the original start of the relationship where we saw the complementary strengths of we are very strong operationally, we do returns really well, and we provide a seamless experience for their customers. And what we get in return is new customers, traffic. And one of the things we have actually seen is that our conversion year-on-year is improving as customers get to know Kohl’s more,” Kohl’s CEO Michelle Gass told analysts on an earnings call this week. 

Given the relationship and the fact Amazon is no stranger to buying established bricks-and-mortar retailers (see Whole Foods deal), making a play for Kohl’s does make sense. 

But of course it all boils down to price, and that price for Kohl’s would be much higher for Amazon compared to a year ago when department stores were being crushed by the pandemic. 

Applying a 25% premium on Kohl’s current market value (generous given how the business has performed these past five years), Amazon would be paying about $10 billion for the company (it paid $13.4 billion for Whole Foods).

Never say never on a deal, however — especially when it makes sense on paper. 

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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