Kohl’s “Off Aisle” off-price experiment

Here’s a consolidation of a couple of recent RetailWire comments. The topic is Kohl’s announcement of a new small-format, off-price store called “Off Aisle by Kohl’s.” A lot of stores (Macy’s and others) are jumping on both bandwagons, and Kohl’s appears to be joining the parade. My question is whether the concept addresses a sales and merchandising opportunity, or simply the excess backup of e-commerce returns in its physical stores:

Kohl’s is the latest store to announce the opening of a small-format outlet store. Evidently the 30,000 square foot store in New Jersey will be a test, starting with the sale of “like-new” apparel, accessories and home goods. It sounds like the initial purpose is to liquidate returned goods, especially e-commerce purchases returned to brick-and-mortar stores. (Full disclosure: Of course I worked for Kohl’s until 2006, but all I know is what I read in the paper!) I agree that this can be a tough sell unless the returned goods are priced very aggressively compared to the layers of sales, discounts and “Kohl’s Cash” already available. And it will be interesting to see whether those overlapping discounts can be used in the Off Aisle store.

This may make sense because of the amount of web-only goods being returned to stores’ physical locations, and it should certainly be a low-cost operation — assuming the logistics are manageable. I’m speculating that Kohl’s needs a systemic way to liquidate e-commerce goods returned to its brick-and-mortar stores. I recently bought a spring jacket online that came in a color different than I expected, and returned it to my neighborhood store. Since Kohl’s doesn’t carry men’s spring jackets in its stores, how do they make these goods go away?

You can multiply my example by millions of similar transactions across over 1100 stores, if I’m guessing correctly. The question is whether Kohl’s can absorb the logistical costs of consolidating and moving these returns to each market’s “Off Aisle” store while pricing the goods as aggressively as they will need to sell the product. The pilot store will be a good opportunity to find out.

But if I were in the business of developing a new “small footprint” concept, I might start with a real strength of the Kohl’s business — fitness and active, athletic footwear, team apparel and other “healthy lifestyle” goods — and wrap it into a package that could profitably fill 10,000 square feet in a mall or power center.

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