Kmart Belatedly Ready to Make Online Play

Analyst questions whether big investment in technology will make difference

Kmart Corp. has decided to invest big bucks to push its blue-light specials.

The Troy, Mich.-based retailer plans to launch an online operation called next month. It also announced last week that it will make an additional $328 million investment in technology to boost its brick-and-mortar facilities.

At the company's annual meeting last week, President and CEO Floyd Hall said Kmart plans to build its online presence over the next year, with a goal of offering a wider selection of goods online than at any single existing store. Kmart now offers only a limited selection of merchandise online.

Hall added that the company hopes to make an initial public offering for next year.

Analysts said Kmart is cutting back on the number of stores it opens, which leaves the company with more cash to invest in technology.

Brian Eisenbarth, an analyst at Larkspur, Calif.-based Collins & Co., said the chain has been fighting "a reputation for being less than top-quality" for years. He said the online move might signify an attempt by Kmart to reinvent itself.

"Online really has been a minimal effort on their part until now," he said.

The retail chain had done well in closing old stores and improving its product line, Eisenbarth added, but the stock market perception has yet to reflect those changes.

"Obviously, the market's not convinced the turnaround's in place; otherwise, they wouldn't be trading at $7 a share," Eisenbarth said.

Eisenbarth pointed out that Kmart's stock is suffering, compared with that of Bentonville, Ark.-based Wal-Mart Stores Inc. and Minneapolis-based Target Corp. Early last week, when Kmart was at $7, Wal-Mart's stock was selling at $57 per share, while Target's was at $67 per share. Kmart's stock was trading at 6.5 times its earnings, while Wal-Mart's was at 38 times and Target's was at 23 times earnings, Eisenbarth noted.

That lag has followed Kmart into the e-commerce realm, where Wal-Mart and Target already boast full-service online operations.

"Kmart really doesn't have the resources Wal-Mart and Target do, and I'm not sure they should try to compete on every level," Eisenbarth said.

Missing in Action

In an April study of the top business-to-consumer sites conducted by ActivMedia Research LLC in Peterborough, N.H., Kmart didn't even make the list of notables, despite its standing as the third-leading retailer in the nation.

"Some companies have been slow to move, and that's what we're finding with our study," said Harry Wolhandler, ActivMedia's vice president of research.

Meanwhile, Kmart plans to invest $328 million in technology to improve customer service within its stores - an increase from $131 million last year and $132 million in 1998. The money will be used to install new high-speed checkout scanners and modernized registers at Kmart's highest-volume stores.

Hall, who plans to retire next April, said the chain "is not yet the retailer we all want it to be."

Technology appears to be a big part of the effort to run with the big dogs of the retail trade.

"I'm not sure Kmart's going to convince people they're a high-tech company," Eisenbarth said. "I think their money is better spent on partnering with Martha Stewart and improving the products in their stores."

Copyright © 2000 IDG Communications, Inc.

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