In 2017, Kohl’s (NYSE: KSS) made a surprising move.

The mid-market department store chain said it would accept Amazon (NASDAQ: AMZN) returns at a handful of its stores. At the time, it seemed like an odd move, as Kohl’s essentially looked like it was doing Amazon a favor by processing and packaging customers’ returns. Kohl’s also allowed Amazon to set up in shop in stores, selling products like Echo devices.

After testing the Amazon returns program at 82 stores for nearly two years, Kohl’s expanded it nationwide in 2019, apparently pleased with the results. At the time, CEO Michelle Gass said, “This new service is another example of how Kohl’s is delivering innovation to drive traffic to our stores and bring more relevance to our customers.”

Kohl’s doesn’t appear to be taking any direct payment from Amazon to handle its returns (if it does, it hasn’t said so), and it’s consistently argued that the partnership would improve foot traffic. The additional traffic is clearly the biggest, and maybe only, benefit Kohl’s is getting from the deal.

Investors have generally applauded the partnership. Shares jumped 12% last April, hitting what’s now its 52-week high, when the retailer said it would roll the returns program out nationwide over the summer. However, after being in effect for the full third quarter and the holiday season, the collaboration seems to be doing little to help Kohl’s results.

So far, not so good

Kohl’s stock fell as much as 10% following disappointing holiday sales results for the November and December period. Comparable sales slipped 0.2% year over year, and the company said earnings per share would come in at the low end of its prior range of $4.75 to $4.95. That EPS forecast was down substantially from the $5.80 to $6.15 management called for at the beginning of the fiscal year.

This came as an especially unpleasant surprise, because management had spent so much time talking up the Amazon partnership. Here are a few quotes from CEO Michelle Gass on the third quarter earnings call in November:

“We continue to be very pleased with [The Amazon returns program’s] overall performance, and based on the results we are seeing, we remain confident that it will have a positive contribution to operating income in 2019.”

“We are very much looking forward to the holiday season, which will be the first with Amazon returns in stores nationwide.”

“We will have Amazon returns in stores nationwide this holiday for the first time, which will drive additional traffic into our stores.”

Despite that optimism, comparable sales in November and December actually declined, which the company blamed on poor performance in women’s apparel. It’s unclear if management was happy with the Amazon returns program during the period, but even if it did help lift traffic, it didn’t do enough to offset challenges in other areas. It also seems unlikely that the program boosted operating income, given the cut in earnings guidance.

A pound of flesh

Kohl’s may be drawing some benefits from the Amazon arrangement, but the costs seem to outweigh any advantage it’s gaining from the additional traffic. Gass acknowledged that the returns program added to operating costs in the third quarter, but the bigger issue is that Kohl’s appears to be giving too much away here for the sake of incremental traffic, much of which may not even consist of actual customers.

Other businesses have similar partnerships with Amazon, but they aren’t as lopsided as Kohl’s. UPS Stores, for example, accept Amazon returns the same way, but its core business is transporting packages so it directly benefits from doing the work to repackage Amazon returns. Rite Aid, the struggling pharmacy chain, has Amazon Lockers in some of its stores and started offering over-the-counter package pickup last year, but that is still much less labor-intensive than processing returns.

Kohl’s even took the bizarre step of designating parking spots for Amazon returns near the entrances of the first 82 stores eligible for the program, essentially rewarding its rival’s customers instead of its own. Of those making returns at Kohl’s, many aren’t going to buy anything in store. If they’re not buying anything from Kohl’s, then they’re just taking up parking and employee resources that could be used for actual customers and adding to the lines at stores during the busy holiday season.

The Amazon returns program was clearly a major initiative for Kohl’s and one that took many hours of planning, negotiating, implementation, and training. Gass has called the program innovative, and management is clearly excited about its traffic-driving potential, but if your best idea for bringing people into your stores is processing competitor returns, you may just be out of ideas.

I was skeptical of the Kohl’s-Amazon partnership when it was first announced in 2017. The early results have only hardened my doubts. Management’s commentary in March when it reports full fourth-quarter earnings should add some key details, but for now, there’s only one winner in this arrangement, and it’s not the department store chain.