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Kohl’s Plan to Partner with Grocers Could Literally Eat into Target’s Share

First came Amazon shop-in-shops. Now frozen foods?

Kohl’s may have found a single solution to its dual mission of driving foot traffic, while also improving productivity in its stores, and it is leading the department store into Target and Walmart territory.

CEO Kevin Mansell told CNBC Kohl’s is looking to lease some of the unused space created by the retailer’s right sizing efforts to grocers and convenience stores.

Though the company doesn’t plan to divulge details until its next earnings call on March 1, Mansell did provide clues as to the ideal type of partner.

“If we had our preference, we are going first after well-capitalized companies, and preferably ones that have high traffic in grocery and convenience,” Mansell told the news source.

Mansell said Kohl’s won’t necessarily pursue an exclusive partnership, rather some deals could be one-offs as the retailer pilots the concept. He also declined to comment on whether Amazon-owned Whole Foods is a possible option.

Over the last year, Kohl’s has been re-evaluating store productivity, which has lead the chain to shrink some by as much as 10 percent—without impacting sales results. In other cases, the retailer has transitioned stores from the typical 87,000 square foot size down to 35,000 square feet, allowing Kohl’s to sell or lease the remaining space.

While the pivot to grocery and convenience stores is unconventional, to Mansell’s thinking, that’s exactly the point. Speaking at the ICR Conference this week, he made it clear the rule book as it’s been written has been tossed out.

Mansell, who is set to retire in May, explained that the company’s decision to pilot Amazon shops in 10 locations and to accept returns for Amazon purchases in more than 80 others was as much about sales as it was about sending a message.

“The point I’m trying to make with the pilot is we’re going to continue to innovate and think out of the box and do things that might be out of the ordinary for Kohl’s,” he said.

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While he said the Amazon collaboration has been well received by customers, ultimately it will be judged on whether it’s driven additional traffic and incremental sales—a yardstick that will likely be used to assess the upcoming grocery and convenience store pilots as well.

[Read about Kohl’s holiday performance: Holiday Performance Pushes Outlooks up For Some, Fails to Move the Needle for Others]

Given the nature of grocery store shopping patterns in particular, traffic shouldn’t be an issue.

Grocery anchors have been championed as the chief reason strip malls and lifestyle centers haven’t suffered as much as malls over the last year. With shoppers in and out of their favorite food stores multiple times a week, these properties enjoy heavy foot traffic.

Kohl’s locations also lend themselves to this type of customer since most are standalone or in strip centers.

“Being off mall with a simpler layout and easier design has been a big positive—a big competitive advantage,” Mansell said during his presentation. One, it seems, the retailer is ready to leverage in new ways.

Kohl’s announcement kicks of what analysts anticipate will be a year in which there will be a slew of collaborations that in any other time would be viewed as odd. Cushman & Wakefield’s vice president of retail research for the Americas Garrick Brown said in 2018 “You’ll see some very strange bedfellows.”