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Kohl's Inks Deal With Aldi to Pilot Grocery Test

Department store retailer eyeing up to 10 stores

Making good on its previously announced plans to partner with and lease space to a food retailer in an effort to drive foot traffic, Kohl's is teaming up with discount grocer Aldi to add as many as 10 stores in a pilot test.

The move comes as the Menomonee Falls, Wis.-based department store chain is said to be looking at ways to make its stores more productive as it tightens up its store footprint. During a call with investors on Thursday, Kohl’s CEO Kevin Mansell said the alliance with Aldi will enable the company "to achieve further inventory reductions and margin acceleration." 

The timing of the first-wave rollout of Kohl’s pilot with Aldi has not been disclosed, although observers believe it could begin as early as next month.

“I commend Kohls and Aldi for thinking outside the box,” Stephanie Waters, global retail industry principal at SAP Hybris, told WGB.

“Groceries are one of the few things that most people buy routinely—which is why Amazon, Walmart and Target have been making big moves in this space to attract more customers and increase lifetime order value,” Waters said. But she cautioned that “selling groceries is hard. For every $100 shoppers spend, stores usually keep only $1 to $3.”

Aldi’s efficient model makes great sense for Kohl’s as a partner, she said. “With their limited assortment and small-footprint store format, they can easily fit within a Kohl's store. So Kohl's gets the foot traffic without the risk.”

From Aldi’s perspective, Waters said, “Renting space in Kohl’s stores is far less expensive than having to build their own [freestanding] stores,” which she said dovetails well with Aldi USA’s stated goal announced in June 2017 to grow its U.S. store base by 900 locations in the next five years.

Waters further believes the “one-stop shop for food, apparel and home goods” will accomplish Kohl’s intentions to drive foot traffic.

If all goes well with the Aldi pilot launch, there is potential for more hybrid partnerships in other sectors to follow, including with fitness centers, Mansell said during Thursday's investor call, when Kohl’s reported exceptionally strong fourth-quarter financial results.

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