Kmart claims BlueLight site's future not in doubt

Analysts speculate that site may be tough to maintain

Financially troubled Kmart Corp. is shuttering some of its underperforming brick-and-mortar stores as it proceeds through Chapter 11 bankruptcy reorganization. But a spokesman for the Troy, Mich.-based retailer last week claimed that the future of its Inc. e-commerce site isn't in doubt.

Dave Karraker, vice president of communications at San Francisco-based BlueLight, said Kmart has secured a $2 billion loan, "so that in itself is a sign of health for the companies and the subsidiaries."

"It's business as usual over here at We are expecting no lapse whatsoever in the online services we provide," Karraker said.

Kmart's BlueLight e-commerce arm had originally been set up as an independent company, with an initial investment of $50 million from Softbank Venture Capital and $12.5 million from Martha Stewart Living Omnimedia Inc. In August 2000, BlueLight received an additional infusion of $55 million from Kmart and $25 million from Softbank.

Kmart bought back the company last year, looking at every aspect of its BlueLight operation to see where it could realize efficiencies, Karraker said. The company cut 75% of its operating expenses after outsourcing its infrastructure and fulfillment to Global Sports Inc. in King of Prussia, Pa., and sliced its staff size down to 40, Karraker said. The staff had peaked at 220 last March, he said.

Kmart's present financial plight has sparked debate about whether the company may shut down its BlueLight operation, given that an e-commerce site is expensive to maintain and generates only a small percentage of a multichannel retailer's overall sales.

"I think they're going to continue, but maybe at a slower pace," said Karen Peterson, an analyst at Stamford, Conn.-based Gartner Inc.

Kate Delhagen, an analyst at Forrester Research Inc. in Cambridge, Mass., said she thinks the BlueLight site can be useful for liquidation of inventory from Kmart's closing stores. "The Internet is great for liquidation," she said.

But Delhagen noted that Kmart can't afford anything other than essentials when it's going through bankruptcy proceedings. "They have to cut any extraneous expense, and the Web site is an expense," she said. "It's not a profit center by any stretch of the imagination."

"If they shut it down, what are the implications? Is it another nail in the coffin of the brand?" Delhagen said. She added that Wal-Mart hasn't fared much better than Kmart on the Web.

"If Wal-Mart, who's in a much better position, can't figure out how to make money online, why do we think Kmart can?" she noted.


Copyright © 2002 IDG Communications, Inc.

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