Dive Brief:

• Amazon will open a grocery store in vacated space leased from a downsized Kohl’s store in La Verne, California, according to a report from the Milwaukee Business Journal.
• The store would likely be under the Amazon Fresh banner, which is expected to roll out multiple locations in the coming months. The La Verne City Council rejected residents’ complaints that the project, which the city's planning commission approved earlier in 2020, could cause potential environmental harm, the Daily Bulletin of Rancho Cucamonga, California, reported in July.
• The La Verne store will be separated from Kohl’s by a dividing wall, and will lease approximately 37,000 square feet of the 88,000-square-foot space owned by Kohl's. The department store chain has been testing the right-sizing, side-by-side concept at a number of its stores.

Dive Insight:

Amazon’s decision to lease space from an existing Kohl’s store is not the first partnership between the two corporations. Kohl’s sells Amazon smart home products in its U.S. stores, and last year began accepting Amazon returns at its stores, a move which helped to boost foot traffic at the big-box.

For Amazon, the space sharing deal offers an opportunity to expand its Fresh concept without investing in a new build. So far the company has focused on taking over leases from retailers like Babies-R-Us, Kmart and Fairway Market.

Amazon also reportedly plans to open an Amazon Fresh location in Gaithersburg, Maryland, a suburb of Washington, D.C., in 2021. The store is expected to take over a 30,900-square-foot retail space currently occupied by an Office Depot. An employee of the office supply store said on Saturday that it would be closing in November and confirmed that Amazon would be moving in.

Grocery Dive reached out to an Amazon spokesperson for comment but did not receive a response by press time.

Amazon Fresh’s highly anticipated debut location in Woodland Hills, California, opened late last month to select customers. The e-commerce giant has also confirmed plans to open Amazon Fresh locations in Irvine and North Hollywood, California, as well as three stores in suburban Chicago. Amazon also reportedly expects to open three grocery stores in the Philadelphia metro area by the end of 2020.

Amazon Fresh locations tend to feature a more mainstream product assortment than its Go and Whole Foods stores. Altogether, experts previously told Grocery Dive, Amazon is pursuing a multi-format growth strategy primed to capture discrete markets, both urban and suburban.

In February, Amazon opened its first Go Grocery supermarket in Seattle, and currently has 26 Go convenience stores in major U.S. metropolitan areas, five of which are closed temporarily. Amazon has said it will open its next Go Grocery store in Redmond, Washington, and will also open a location in Washington, D.C.

Amazon has profited significantly from the e-commerce boom brought on by the coronavirus pandemic. Research by RBC Capital Markets estimated that Amazon’s gross merchandise volume in the online grocery segment will account for nearly 11% of total gross merchandise volume by 2023, of a total of $77 billion in revenue. Online grocery sales tripled during this year's second financial quarter, Amazon recently reported. 

Kohl’s had already opened 20 side-by-side locations by the end of 2019, including a partnership with Aldi at ten existing Kohl’s stores. Kohl’s CEO Kevin Mansell has said that the ‘"side-by-side" concept is particularly suited to sharing space with grocery and supermarket chains, as they act as traffic drivers to Kohl’s. 

Of 3,000 consumers surveyed in a 2019 Field Agent market research survey, 49% said that they would be moderately or very likely to shop at a Kohl’s store if there was an Aldi next door. With more than 1,100 stores across the country averaging between 80,000 and 90,000 square feet, Kohl’s has faced an excess space issue for years prior to the onset of the coronavirus pandemic.

Sam Silverstein contributed reporting to this story.