As many malls have disappeared and websites like deadmalls have recorded their demise, Kohl's (KSS) is adapting its sprawling retail spaces by adding tenant partners like the German grocery giant Aldi to drive down costs and pick up store traffic.
So far, the company has announced the opening of up to 10 Aldi locations on Kohl's property, making use of excess space as the company downsizes 500 of its larger stores.
Chuck Grom, senior analyst at Gordon Haskett, called the initiative a "double benefit" for the retailer.
"It's a really outside-of-the-box move from the company," he told Real Money. "They can use a store that they realize is too big and benefit from driving down overhead and partnering with [a company] that can help drive traffic as well."
The initiative, coupled with a myriad of positive factors explained in the earnings and subsequent conference call prompted Grom to give the stock an "accumulate" rating and an $86 price target.
The tenancy program, while still in its younger days, looks to grow rapidly as CEO Michelle Gass noted the retailer has a list of potential suitors waiting.
"We've built a robust pipeline of potential tenants," CEO Michelle Gass told analysts on the call, indicating that those 500 stores could be filled with tenants in short order.
Jefferies analyst Randall Konik likewise took note of the pilot program as a possible area of growth in an otherwise struggling brick and mortar industry, in which nearly 7,000 stores closed in 2017.
"[The] smaller store initiative could have a meaningful impact on rent expense and productivity if the [tenant] pilot reaches greater scale," he wrote in a note this morning.
Time will tell when the company approaches the appropriate scale, but thus far both analysts and the company are positive on this innovative initiative.
