What's going on?

Kohl�s, the American department store, said on Thursday that a low-cost German grocer, Aldi, would be getting floor space in 10 of its stores � a test project designed to decrease Kohl�s footprint and increase its footfall.

What does this mean?

Like many big ol� department stores, Kohl�s has a problem: it�s got too much space. In an era where many do their shopping online, having floors and floors of merchandise is unnecessary. It�s far better to sub-let that space to other retailers that could bring in additional traffic, giving Kohl�s the opportunity to shift more Fruit of the Loom while its partner sells fruit of the tree. Aldi, which is big in Europe but only recently launched a multi-billion-dollar expansion in the US, is jumping at the opportunity.

Why should I care?

The bigger picture: Inventory management is even more important than it used to be � and a small store footprint helps.

Similar to Macy�s recent results, Kohl�s made more profit than Wall Street expected in its recent quarter largely thanks to better management of its inventory. By keeping this lean, Kohl�s runs less risk of being left with clothes it can�t sell. But lean inventory doesn�t suit huge stores: the products need to be neatly and compactly displayed � hence the need to reduce floor space.


For markets: Physical stores aren�t dying (yet) � they�re just getting much smaller.

While delivering many goods ordered online has become relatively straightforward, even Amazon has struggled to master the �last mile� when it comes to food (leaving yogurt in your �safe spot� doesn�t quite work�). Kohl�s is astutely trying to partner with retailers that have suffered less from digital disruption, like grocers (and perhaps fitness centers), to help draw in customers to its physical stores � where they may be tempted to buy some of its own stuff.