Why Kohl’s Next CEO Is Not Afraid of Bringing Amazon Into Its Stores

On Wednesday, Kohl’s will start handling returns of merchandise bought on Amazon at 10 of what will soon be 82 of its stores in Los Angeles and Chicago. The chain is also debuting the first of its Amazon smart home boutiques within Kohl’s stores. The dual partnerships, when announced last month, were met with a certain amount of bewilderment by retail commentators, many of whom questioned whether Kohl’s was bringing an enemy into stores and risk market share erosion. One only has to think of the steep price defunct bookseller paid for having Amazon run its web site for years, or how much bigger Target’s (TGT) would be if it hadn’t waited until 2011 to take back oversight of its e-commerce from Amazon to understand the skittishness.

Kohl’s Chief Merchandising and Customer Officer Michelle Gass, set to become CEO in May, tells Fortune that’s the wrong way to look at it at a time of fundamental change in retail and of wobbly shopper traffic at many of the chain’s 1,160 stores.

“We’re going through one of, if not the, most transformational times in retail, and we have to really think differently,” says Gass. “The retail market is big so there is plenty of room for Amazon and Kohl’s to co-exist.” And Kohl’s is hardly the only retailer to come to this conclusion: Sears recently said it will sell Kenmore appliances on Amazon, while Best Buy is also giving space in its stores to Amazon.)

While Kohl’s business has held steadier than the likes of J.C. Penney (JCP) and Macy’s (M) in recent quarters, its top line is roughly where it was six years ago, a big contrast to the retailer’s torrid growth for decades prior to that. One of the biggest culprits has been a drop in the number of visits by customers, according to Kohl’s CEO Kevin Mansell, who told us last month “the biggest priority is solving the traffic problem.”

Enter the partnership with Amazon. At the Kohl’s stores, customers will be able to hand over a return of eligible items to Kohl’s workers, who will then package and ship the item to Amazon’s returns centers. Kohl’s, which is setting up designated parking spots near store entrances, is testing out a few different configurations for how to handle the returns, such as a dedicated Amazon return area, incorporating Amazon returns into its own customer service areas, or at cash registers.

Also starting Wednesday, Kohl’s will open the first of its 10 planned Amazon smart-home branded 1,000 square-foot shops that will be staffed by Amazon employees and showcase how a variety of Amazon devices, including Amazon Echo, Echo Dot, Amazon Fire TV, Fire tablets and others interact with Alexa, Amazon’s voice enabled technology. Gass said some 30% of U.S. households have smart home products of some kind and expects that category, where Kohl’s is largely absent, to continue growing quickly.

Amazon, which recently bought the Whole Foods Market grocery chain, gets more of the physical space it needs to reach more customers in the category, while Kohl’s, looking to shake off six straight quarters of sales declines, gets more shoppers into its stores from both arrangements, the thinking goes. Gass would not discuss the financial terms such as whether Amazon would pay rent on the returns area nor which merchandise categories, many of which overlap at both retailers, might be excluded from the returns service.

Kohl’s has bucked the trend among its key rivals, namely Penney, Macy’s (M) and Sears (SHLD), by preferring to shrink many stores rather than close them outright, betting that physical stores close to as many shoppers as possible was the way through retail’s current turmoil.

“Clearly our store base is a strength for us,” says Gass. “The No. 1 priority is to actually drive traffic and we’re experimenting with a lot of things to do that.”

Here are the first 10 stores to handle Amazon returns: