Kohl's might be making the same catastrophic mistake that set Toys R Us on the path to bankruptcy with its Amazon partnership

  • Kohl’s partnership with Amazon has been applauded by investors.
  • However, past Amazon partnerships — specifically its deal with Toys R Us, which filed for bankruptcy on Monday night — reveal that seemingly mutually beneficial relationships don’t always help both companies.
  • Kohl’s partnership with Amazon could ultimately help the e-commerce company crush its competition, Kohl’s included.

Kohl’s partnership with Amazon could end up being a deal with the devil.

On Tuesday, the department store chain announced that 82 locations in Los Angeles and Chicago would begin accepting Amazon.com returns in October. The news follows an announcement earlier in September that 10 Kohl’s stores would begin selling Amazon devices, including the smart speaker system Echo.

Most investors have celebrated the news, with Kohl’s shares rising following both announcements.

“All told, we like the moves Kohl’s is taking as it continues to think outside the box and forward think on how to evolve in today’s quickly changing backdrop,” Gordon Haskett analyst Chuck Grom wrote in a note to investors Tuesday morning.

However, looking at the longer-term impact of some of Amazon’s partnerships reveals some reason for concern.

Companies like Borders and Target that partnered with Amazon to help build their e-commerce business in the early 2000s found themselves, less than a decade later, lacking the sufficient online experience and infrastructure necessary to keep up with the competition.

“Kohl’s has to tread a very thin line partnering with Amazon,” Cooper Smith, head of Amazon research at digital business firm L2, told Business Insider. “Retailers like Borders have partnered with Amazon and much to their demise, it ended up hurting them. History very well could repeat itself here.”

The perfect case study for an Amazon deal gone sour is from another company in the news this week: Toys R Us, which filed for bankruptcy on Monday night.

In 2000, Amazon and Toys R Us announced a partnership in which Amazon would sell Toys R Us toys, to the exclusion other companies. In exchange, Amazon became Toys R Us sole online presence, with ToysRUs.com redirecting directly to Amazon.com’s

“The pact was widely heralded as an example of how young Internet companies like Amazon would soon be tying up with ‘bricks and mortar’ retailers to mutual benefit,” the Wall Street Journal reported in 2006. “Instead, the deal has turned into a case study of how quickly promising alliances can turn into acrimonious business disputes as companies adjust to the shifting realities of the Web.”

In 2003, Amazon began selling toys from other retailers — something the e-commerce company argued was within its rights, and Toys R Us argued was a violation of the companies’ contract. In 2004, Toys R Us sued Amazon seeking $US74 million in damages alleging that the e-commerce company violated their exclusivity agreement; Amazon counter-sued for $US4.71 million saying that Toys R Us failed to keep items in stock on the site.

Toys R Us won the case — and finally launched its own website — in 2006, though the judge did not reward any monetary damages. Since being taken private in 2005, Toys R Us has struggled to compete with ecommerce rivals and brick-and-mortar competitors, like Target and Walmart, that have built up their own online business.

Kohl’s partnership with Amazon is not the perfect comparison to the doomed Toys R Us deal.

For one, Kohl’s is surrendering less than Toys R Us did.

“I think this specific deal with Amazon does make sense though for Kohl’s, because the whole premise is to get shoppers back into its stores — and if it’s Echo’s or Amazon returns that help then so be it,” Smith said.

However, in 2000, the Amazon-Toys R Us deal was also applauded. At the time, it was unclear how important online sales would be to the toy industry. Additionally, it was far from obvious how all-encompassing Amazon — then known primarily as an online bookseller — would one day become.

Now, Amazon is expanding into brick-and-mortar itself. With physical bookstores and grocery stores, as well as the acquisition of Whole Foods, Amazon isn’t going to stay online. And, by partnering with Amazon, Kohl’s may be giving its competitor a key advantage that could end up hurting its own business in the long term.

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