Dive Brief:

• Kohl's is working to right-size many of its full-size stores and is looking to lease or sell the extra space, CEO Kevin Mansell said in a keynote address at the ICR Conference in Orlando on Tuesday.

• That space would ideally go to grocers or convenience stores to drive traffic, he told CNBC after his address. "If we had our preference, we are going first after well-capitalized companies, and preferably ones that have high traffic in grocery and convenience," Mansell told CNBC, declining to say whether Whole Foods is among those. Kohl's has a partnership with Amazon in 82 stores, with Amazon concessions at certain locations and Kohl's staff taking Amazon returns.

• Kohl's has a list of potential retailers to unload its extra space, rivals included, and the upshot of any such deal would be to boost traffic and sales, and not just to fill the space, Mansell said. The company is also considering expanding through acquisitions. "Kohl's is not taking anything off the table. We have a healthy balance sheet and we can actually act," he told CNBC.

Dive Insight:

Like Target, which plans to open more than 130 stores with space averaging between 20,000-30,000 square feet by the end of 2019, Kohl's wants to take up less space even as it aims to cater to more customers.

In his address on Tuesday, Mansell emphasized that the downsizing doesn't mean fewer stores, noting that 90% of its sales still take place inside a physical location. "I think we may actually have more stores, but we want smaller stores," he said, adding that the retailer's experiment with 35,000 square feet (compared to a more typical Kohl's location of closer to 80,000 square feet) "is successful." Those stores are now in small markets, but Kohl's is moving them into larger markets as well, he said.

The vast majority of Kohl's locations — 95% according to Mansell — are away from malls, which makes it "the department store that has the best matrix because they are not a high cost operator," according to Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates. Their position away from malls, with convenient parking, makes it easy to shop there, he said. Those are all elements that could appeal to the kinds of partners that Mansell hopes to attract.

"They have the lowest cost structure," Davidowitz told Retail Dive. They have "a racetrack format with central checkout and the least adjustments to make."

Mansell, who plans to retire in May, also told his ICR audience that Kohl's Amazon partnership is going well. While the tie-up seems shocking, and is fraught with controversy in some quarters, he sees it as a quite simple move that, above all, drives traffic — a huge priority at the moment — and demonstrates that Kohl's is willing to "think outside the box."

"I totally understand the interest level … [it shows that we're] not afraid to take chances," he said, adding that any continuation or expansion of the partnership will come from hard evidence that it benefits Kohl's. "The customer experience has been phenomenal, both on the Amazon effort and on the return side," he said, adding that the Amazon offer is "heavily used" in the 82 stores it's in, that customers are reporting it as a valued benefit and that it has potential for the long term if the compant sees increased traffic and sales.