Kmart gives green light to Bluelight business model - Brief Article

DSN Retailing Today, July 24, 2000 by Peter J. Gallanis

SAN FRANCISCO -- As the fastest growing free ISP with two million subscribers, Kmart's BlueLight.com Web site is still being tweaked prior to its full launch later this fall. And as it prepares for this much ballyhooed launch, Bluelight is concentrating on creating a business model that can seemlessly carry Kmart's traditional brick-and-mortar concept to the world of e-commerce.

The site, launched six months ago, had a paltry 34 skus--to date that number has grown to about 3,500. The selection of merchandise has been greatly expanded, and the site is now the exclusive online retailer of its popular Martha Stewart Everyday (MSE) product line that is prominent throughout the site.

But Kmart wants to expand past the traditional role of bricks-and-mortar retailing and distinguish itself from not only the pure-players, but also existing bricks-and-click retailers such as Sears and JCPenney.

Bluelight's plan involves exploiting its relationship with its off-line and on-line assets, going a step beyond the clicks-and-mortar model. The goal, according to Bluelight, is to create a "sticker" online shopping experience that satisfies the consumer's needs and wants through real-world and online retail programs.

Bluelight has a viable strategy, according to Forrester Research, which has asserted that pure-players with few hard assets beyond a solid, full-function site will fall by the wayside, unable to keep up with their full-channel peers.

Bluelight will combine the assets of its retailing partner Kmart, its on-line partner Yahoo, and Martha Stewart Living Omnimedia Inc. The company's business plan has five key elements to distinguish itself from the competition, leverage its partnerships and keep in sync with Kmart's e-commerce strategy.

* Develop an audience: Key to Bluelight's strategy is tapping into Kmart's existing consumer base with it free ISP service, which has grown to over two million subscribers to date. According to Bluelight, of its two million existing subscribers, the majority are Kmart shoppers, but whether these subscribers become Bluelight shoppers has yet to be seen. If the plan works, Bluelight will bring Kmart's core audience, more than 30 million shoppers per week, on line and develop an e-commerce relationship based on two of Kmart's guiding principals: value and convenience.

* Provide a compelling on-line shopping destination: When the site fully launches later this fall, Bluelight's plan is to offer more skus than at a Kmart store, as many as one million skus, according to Bluelight. The company will be partnering with other content providers to establish a selection of goods and services that directly meet the consumers' needs and wants. Included will be Bluelight's (and Kmart's) exclusive line of Martha Stewart Everyday products and Sesame Street Merchandise--two of Kmart's cash cows. As with Kmart stores, Bluelight will be open 24/7 and promises shelves will always be full.

* Create integrated shopping solutions: Bluelight will execute integrated solutions through in-store returns at Kmart stores of products bought on line. In addition, the company will in-store Internet access called Bluelight Centers. Customers will be able to purchase items on line if they are unsuccessful in the actual store. Further, Bluelight is banking on its relationship with its partners to reach its partners consumer base too, including integrating the Bluelight name in Kmart advertising circulars to reach more than 72 million U.S. households each week. Bluelight will also share marketing and advertising plans with the brick-and-mortar Kmart in other types of print advertising, broadcast spots and other direct marketing vehicles.

* Develop distinct brand loyalty programs: Former chairman, president and ceo, Floyd Hall told shareholders at the company's annual meeting that private brands are becoming more and more important to retailing. Integrating this philosophy into the Bluelight strategy Bluelight feels developing a distinct loyalty program could prove to be the most crucial element for succeeding in e-commerce. Bluelight will offer a brand loyalty card that allows consumers to earn points for rewards when they shop on line or at a Kmart store. The points can be used to provide customers with shopping specials and reward them for their loyalty. Another key factor for developing that loyalty will be to provide shoppers with a superior customer service experience by promising customer service access 24-hours a day both on and off line.

* Form key strategic partners: Bluelight's philosophy is to partner with those who can help expand the company's presence both on and off line including building relationships with technology, marketing and content partners. For example, Bluelight is expanding its product offerings on its site by partnering with companies such as GlobalSports Inc., a leading online sporting goods supplier. It has established an agreement with SubmitOrder.com to handle e-fulfillment for its backend operation. Bluelight said this would reduce capital outlay and allow the company to concentrate efforts on building and marketing its site.