Dive Brief:

• Aldi will place up to ten pilot locations inside Kohl’s stores later this year, Kohl’s CEO Kevin Mansell said during an earnings call this morning, according to Retail Dive. 
• Kohl’s currently has Amazon kiosks offering devices and other products inside select stores. Mansell said the fashion retailer hopes to deepen its relationship with the e-tailer in the months ahead, and said Kohl’s could add additional retail brands to its stores. Currently, Kohl’s is pushing to “right size” its stores to maximize foot traffic and sales efficiency.
• Aldi operates more than 1,700 stores across 35 states, and plans to expand to 2,500 locations over the next four years.

Dive Insight:

Kohl’s CEO Kevin Mansell said in January the company wanted to partner with a food retailer that was “well capitalized” and had “high traffic in grocery and convenience.” Aldi certainly fits that bill.

Since coming to the U.S. more than forty years ago, Aldi has stealthily expanded its store count and now, sensing an opportunity for industry disruption, is putting that growth into overdrive. Over the next few years, the discounter will add hundreds of stores in key markets across the country. At the same time, it’s remodeling locations with more fresh items to attract higher-income shoppers.

But will its partnership with Kohl’s be a boon or a bust? Aldi is adept at operating in small formats — its stores average around 8,000 square feet — so it should be able to maximize its limited space allotment. Its low price, high quality proposition jibes with Kohl’s affordable fashion sales, too.

The deal also works toward one of Aldi’s key goals right now: exposure. The discounter wants more people to try its private label products and get hooked on them. Likewise, Kohl’s wants to increase foot traffic to its stores, and to that end is “right-sizing” its format to maximize sales, according to Mansell.

Partnering with Kohl’s places Aldi in good company. The fashion retailer recently added Amazon kiosks in select stores, and plans to add other store-within-a-store tests, as well.    

The main counter arguments in all of this are that Kohl’s is diluting its brand, and shoppers typically don’t look to stock up on groceries when they go clothes shopping. Aldi, which regards itself as a full-service grocer, may struggle to offer an assortment that appeals to shoppers’ convenience needs.

It’s worth keeping in mind, though, that this is an experiment for both companies. In a retail industry increasingly dominated by Amazon and other online sellers, brick-and-mortar chains have to be bold and innovate — and sometimes join forces — in order to succeed.