Kohl’s, like many other department stores, has been struggling to differentiate itself in the market amidst changing consumer trends. The chain was even looking to be acquired just two years ago, with Amazon being a potential buyer. However, Kohl’s is now focusing on a strategy to set itself apart, with Babies “R” Us being the latest addition. Kohl’s has chosen 200 locations nationwide to open Babies “R” Us store-within-a-stores, as part of an exclusive deal with WHP Global, the new owner of the Toys “R” Us and Babies “R” Us brands. The chain sees a sales opportunity of over $2 billion in the baby products category in the coming years, and aims to create a comprehensive baby shopping experience by placing the new Babies “R” Us shops next to existing baby products.
Kohl’s is pursuing a store-within-a-store strategy with Sephora shops in all stores by 2025, Amazon returns kiosks in all stores as of 2019, and now Babies “R” Us. This approach of accommodating multiple third-party retail entities in physical stores is unique to Kohl’s, and the success of previous partnerships such as Sephora can provide insights into how the Babies “R” Us deal might play out. The breakup of the J.C. Penney/Sephora relationship, which happened in 2021 over a legal dispute, led to Kohl’s securing the Sephora store-within-a-store deal.
Despite experiencing declines, J.C. Penney has recently seen success by building its own beauty section that appeals to trendy TikTok users, following the end of the Sephora partnership. This move suggests that in-house offerings can be successful in attracting and retaining customers. The Q4 investor call for Kohl’s indicated substantial sales gains driven by Sephora, and emphasized improving merchandising flow and adjacencies in the stores. The addition of a Kohl’s-operated baby section next to Babies “R” Us shops demonstrates a strategy to drive in-house sales alongside the third-party offerings.
Kohl’s Amazon returns partnership has brought in new visitors and shown upward trends in conversion rates, with 2 million new visitors in 2020. However, the draw of the service is not exclusive to Kohl’s, as other retailers like Staples also have Amazon dropoff partnerships. The presence of the service on-premises can potentially increase the value of other third-party shops within the stores. Kohl’s is focusing on merchandising around the returns, beauty, and baby categories to create a store experience that attracts footfall with third parties while also encouraging customers to explore and purchase from other departments.
With Kohl’s dedication to merchandising intelligently around and between third-party shops, the chain seems committed to making the store-within-a-store strategy work. By learning from J.C. Penney’s success in building its own beauty section following the end of the Sephora partnership, Kohl’s can adapt if one of the third-party relationships ends. The future of department stores like Kohl’s might involve more floor space dedicated to third-party shops, creating a one-room mall-like environment where customers can shop a variety of apparel-adjacent brands within the store. Kohl’s strategic partnerships with brands like Sephora, Amazon, and now Babies “R” Us demonstrate a move towards a new retail model focused on multiple third-party entities within the store.
