Breaking Down the Kohl’s-Aldi Arrangement

Last Updated on August 17, 2018

Earlier this month, department store chain Kohl’s announced it was piloting a plan to house Aldi stores in some of its existing buildings.

If you were like us, chances are, your first thought was … wait, what?

Well, we’ve had a chance to give it some thought. A few things stand out.

1. This is a pilot program for a company with too much space.

First and foremost, this is part of a larger strategy by Kohl’s to “rightsize” its stores. This is corporate-speak for “our current stores are too large for our needs and we need to shrink them.” In particular, the era of online shopping has made the need for large stores less necessary than it used to be, and Kohl’s is probably feeling the pinch. All those square feet don’t heat themselves for free, after all.

So Kohl’s has decided to take a novel approach to its larger stores by leasing or selling some of the excess space. The retailer is already piloting a few stores with Amazon using a similar approach, so the idea is not as out of the blue as it might appear. Also, this is a pilot program — “5 to 10 stores,” according to the company — so you shouldn’t expect to see Aldi locations sprouting up inside every Kohl’s just yet.

2. This is also about both Kohl’s and Aldi competing with big box stores.

At some point Kohl’s — a department store that largely operates outside of traditional malls — decided that its primary competition was the big box world: Target and Walmart, specifically. Both of those stores have moved toward creating one-stop-shopping experiences with cafes, pharmacies, and, of course, a large enough grocery section to take care of many food needs. Housing an Aldi — which has the small-inventory, small-grocer thing down to a science — is a shrewd way for Kohl’s to create its own counterpunch to Target and Walmart groceries without having to reinvent the wheel itself.

But make no mistake … Aldi also stands to benefit. A lot of consumers still view Aldi as a low-budget store with low-budget products, and exposing more upscale Kohl’s customers to Aldi can only be good for the German grocer as it tries to also compete with regular grocery stores.

3. This is a low-risk, high-reward approach for Kohl’s … and for Aldi.

Since it’s a pilot program that only affects a handful of stores, Kohl’s can test-drive the concept without much risk to either itself or Aldi. If it flops spectacularly, Kohl’s can close the 5-10 pilot operations in question without much fuss.

On the other hand, the upside is undeniable. Aside from the aforementioned potential draw of customers to a store with a grocery component, it also helps to infuse Kohl’s with some cash at a time when it could use it. Kohl’s can use that cash in any number of ways, not the least of them being making the shareholders happy. For Aldi, it provides a chance to attract new customers while also operating under a lease deal that, I suspect, is probably a favorable one, since Aldi is operating from a position of strength here.

4. There are a lot of unknowns.

There are some things we still don’t know. Will customers, for example, be able to access Aldi independently, or will foot traffic have to go through Kohl’s to get to Aldi … or will there even be direct access from Kohl’s to Aldi? Will the stores collaborate on any joint ventures, such as promotions? Will the two stores’ operating hours be the same.

And what about Aldi Special Buys (ALDI Finds)? Some of those are direct competitors to products Kohl’s has on its shelves. Will these pilot Aldi stores carry those products, or not? What kinds of products will these Aldi stores have period, since they’re probably going to be a little smaller than even a traditional Aldi?

5. Whatever the strategy, Aldi and Kohl’s are still really weird bedfellows.

We get the whole grand plan here, but it’s hard to imagine two companies more different than Aldi and Kohl’s.

Kohl’s is a publicly traded American department store. Aldi is a privately owned German grocer.

Kohl’s sells products online. Aldi US does not.

Kohl’s hands out coupons like candy. Aldi US doesn’t do coupons. Ever.

Kohl’s has some of the slowest checkout experiences we’ve ever had the misfortune of passing through. Aldi’s checkout experience is so fast it can give you whiplash.

Most importantly, Kohl’s uses an apostrophe. Aldi does not.*

* No, this is not important, but it does give us an excuse to point out that it’s not Aldi’s.