Food discounter Aldi and department store chain Kohl’s Inc. this week are beginning what they hope will be a fruitful run as next-door neighbors.
The Aldi store opening Feb. 7 in Waukesha, Wis., was built into a portion of a building that formerly belonged entirely to Kohl’s. The pairing is the first in the U.S. where a downsized Kohl’s is leasing space to be taken over by Aldi; five to 10 such sites are expected to open.
Kohl’s officials announced the partnership last year in connection with an overarching “right-sizing” initiative for the chain, which is seeing many of its stores take on smaller footprints with reduced inventories, in part as a response to effects of e-commerce on its business. The move may also make Kohl’s locations more comparable to fashion and home-goods competitors such as Walmart and Target, each of which have become significant players in grocery.
A spokesperson for Kohl’s, based in Menomonee Falls, Wis., emphasized the partnership with Aldi is a test, and she told WGB the company had no further updates on the deal beyond the announcement last year. At the time, officials said they were looking for co-tenants with strong credit and the potential to drive foot traffic; Batavia, Ill.-based Aldi fits both those criteria—and happens to be in the middle of $3.4 billion nationwide expansion strategy focused on efficiently locating new stores in the kinds of high-visibility locations like those belonging to Kohl’s.
Financial details of the partnership have not been disclosed.
“I realize that I'm sounding probably pretty optimistic about this, but that’s because we think we’ve got a big idea here,” said now-retired Kohl’s CEO Kevin Mansell last March when the Aldi initiative was announced. “And most importantly, I think we're very uniquely positioned to execute on it.”
In Waukesha, Aldi and Kohl’s will share no common interior space, and the stores will have separate entrances, Aldi Oak Creek Division VP Atty McGrath said in an email. “As part of our plan to expand to 2,500 stores by the end of 2022, we are looking for ways to bring more Aldi stores to the convenient locations people want. In this case, we worked with Kohl’s to identify locations adjacent to existing Kohl’s stores,” she said.
As retailers wrestle with effects of shifting channels, hybrid partnerships have become something of a trend in itself. Kroger and Walgreens, for example have begun exploring a partnership whereby 13 Walgreens stores in Kentucky are adding Kroger Express shops and serving as pick-up points for the grocer’s online orders.
Aldi said the Waukesha location would include its now-standard offering of expanded fresh and on-trend items, in-and-out general merchandise offers and limited range of private label assortment at sharp prices that is resonating with mainstream shoppers.
It’s possible the deal won’t be a “win-win” for a Waukesha market seemingly teeming with food shopping options already. An independent Sentry supermarket is located in a shopping center just south of the Kohl’s parking lot, and “there is an onslaught of competition just down the street—Target, two Pick ‘n Save stores, Meijer and a Walmart Supercenter. Plus, two Kwik Trip [convenience] stores nearby that sell bananas, onions and potatoes for 38 cents a pound every day,” said David Livingston, a real estate site consultant with DJL Research, formerly based in nearby Pewaukee, Wis. “Aldi is not known for putting stores out of business, but this Sentry can't afford to lose another dime.”