Dive Brief:

• Amazon now has space carved out in 10 Kohl's stores in the Los Angeles and Chicago areas, dedicated to the "Amazon Smart Home Experience," plus an area for Kohl’s to take returns, according to a Kohl's press release. More than 70 other stores will be taking Amazon returns, although the department store didn’t say whether Amazon returns will be available ahead of the holidays, CNBC reports.

• As previously reported, the Amazon concessions, which include Amazon devices, will be staffed by Amazon employees, while the returns will be processed by Kohl’s employees. The two retailers have been quietly working out their alliance since the spring, Michelle Gass, Kohl's chief merchandising and customer officer, (who is set to become the retailer’s CEO next May) told CNBC.

• Kohl’s also opened four more of its smaller-format stores, (in Blue Ash, Ohio; East Windsor, New Jersey; Montebello, California; and North Smithfield, Rhode Island), with 60% less space and 25% percent less inventory than a standard Kohl’s store, the company said last week. 

Dive Insight:

This tie-up is widely seen as a boon for Kohl's traffic and sales and a chance for Amazon to present its smart-home devices in a brick-and-mortar setting and relieve one of its few pain points — returns. As evident in its push for smaller stores, Kohl's is shrinking its space; that could mean more space for Amazon to encroach in the future, analysts told CNBC.

The alliance comes with complications, however, especially for Kohl's.

Many analysts hailed the program, calling out the benefits to Kohl's, which has struggled in its turnaround for several quarters. Gordon Haskett analyst Chuck Grom called the Amazon announcements "intelligent" in an email to Retail Dive, while Jeffries analysts told Retail Dive they reflect "thought leadership" at Kohl's and predicted the collaboration would spread to more stores. But there's another element to consider, as Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates, noted to Retail Dive: "Amazon is the enemy."

"The last retailer that signed up with Amazon, it ended up in a great big lawsuit," he told Retail Dive over the phone, referring to the 2004 claim by Toys R Us (which filed for bankruptcy last month) that Amazon violated the exclusivity it had promised in their contract. "Kohl’s is doing this on an incremental basis — this is a test, is what I think it is."

It’s not just Kohl’s — there’s an increasing level of collaboration between e-commerce and traditional retailers, as seen in Amazon’s acquisition of Whole Foods, its lease of the top floors of a Macy's store in Seattle, Walmart’s e-commerce acquisition spree, and eBay executive Hal Lawton’s move to Macy’s, Grom said. Even Nordstrom’s experiment with a merchandise-free retail concept is part of that landscape, he noted.

"We continue to observe more and more collaboration between digitally native companies and traditional retailers – a theme that we think will continue to build momentum in the coming quarters," Grom said.